Car+Rental+Supply+in+China+Not+Meeting+Demand+by+Daryl

//**REMEMBER: DO NOT SUMMARIZE THE ARTICLE!!!**//

Car Rental Supply in China Not Meeting Demand
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http://www.autorentalnews.com/Channel/Rental-Operations/News/Story/2011/10/Hot-Car-Rental-Demand-in-China-Straining-Supply.aspx
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October 18 2011
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March 10 2012
 * DATE CURRENT EVENT WAS WRITTEN: **

This article talks about how the demand for car rentals have increased drastically over the three-day mid-autumn festival. The car rental companies have had no problems with shortages over the course of the year so they had tried to increase demand by advertising prior to the holiday season. This increase was a result of a determinant of demand – number of consumers. Because the number of consumers – people who were planning to go to their family reunion – increased over the holidays, the demand for rental cars consequently increased. As a result, over the three days, the demand for car rental service was price inelastic because people needed to rent the cars for their family reunions. This inelasticity is shown by the fact that even though there is high thresholds that car had to be rented for at least three days over the holidays; people still did not hesitate to rent the cars. Consequently, due to the drastic increase of demand, price also shot up, increases ranging from 50~100%. Also, due to the sharp increase in demand, there would have been a temporary shortage, which was attempted to be solved by the rental companies doubling their supply. However, even with the increase in supply, the increase in demand was so high that the market was left with a shortage, or excess demand.
 * EXPLANATION OF THE ECONOMIC THEORY RELATED TO THE ARTICLE: **


 * VOCABULARY TERMS AND DEFINITIONS: **
 * Supply: How many/much goods or services people or businesses are willing and able to provide and sell at all different prices
 * Demand: How many/much goods or services people are willing and able to buy at all different prices
 * Price Inelasticity of Demand: a situation in which the demand for a service or good does not increase or decrease correspondingly with a fall or rise in its price
 * Shortage (Excess Demand): A situation in which the demand is higher than the supply, not allowing the equilibrium to be met.
 * Determinants of Demand: Non-price factors that influence the demand for a product

Graph 1. Excess demand in the car rental market
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This graph shows how due to the sharp increase in demand, the supply cannot meet the needs of the consumers and as a result, there is a shortage.

Graph 2. In-elasticity of demand in the car rental market This graph shows how because the demand of the car rental services are relatively inelastic because people need them to get to their family reunions, a increase in price will only decrease the quantity demanded by a small amount. In this article, the car rental firms have tried to increase demand by advertising. In this case, this method could be viewed as both good and bad. First of all I want to talk about the good side. This method can be viewed as good because it increased the demand over the holiday season. They took advantage of the fact that more people would be needing cars over the holiday season and put up advertisements which allowed the increased number of consumers to seek rental cars. This increase in demand allowed the car rental services to raise their price because of the inelasticity of the product, thus increasing their profit. In this sense, the advertising could be seen as good. However, there is also a negative effect this may bring to the firms in the long run. Although they had increased profits over the holiday, their reputation may decline in the long run because of the shortage created by the sharp increase in demand which resulted partly from the advertising. The consumers who wanted to rent a car but couldn’t due to the limited supply would be discontent and may not want to rent a car from those firms anymore. So, this advertising also has a negative effect on the firms.
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