Nissan+makes+temporary+production+cuts+in+Mexico-+Kaki+Tsang

Kaki Tsang IB Economics SL Y1 March 10, 2011 Current Event #3 = Article Title: Nissan makes temporary production cuts in Mexico = = Source:http://news.yahoo.com/s/afp/20110409/bs_afp/mexicojapandisasteraccidentautocompanynissan = Summary:

After the tsunami and earthquake that recently hit Japan, two Nissan automobile plants in Mexico will be temporarily closed for at least 15 days. This is because manufacturers in Japan can no longer send their parts for assembly in Mexico. These reductions would not only send workers out of work for half a month, but cut the production of nearly 12,500 automobiles. Production cutbacks have also been issued to Nissan automobile plants in North America as well. Nissan hopes to make up for these production cutbacks later in the year when the situation in Japan has gotten better.

This is an article that has to do with microeconomics, because it involves an individual firm as compared to the economics of the entire world. As a result of the natural disaster, automobile manufacturers in Japan have stopped production and could no longer supply parts. The factor of production being affected here is capital, because automobile factories have been damaged from the tsunami, therefore parts could not be supplied to the manufactures in Mexico. This would mean the number of producers (a determinant of demand) for automobiles parts have decreased. This would result in an overall decrease of supply in automobiles because there are fewer firms supplying the parts (this is shown by the production cutbacks). Although supply has decreased, all other factors, such as demand for cars, remains constant, or ceteris paribus.

Vocabulary:
 * 1) Microeconomics-is a branch of economics that studies the behavior of how the individual modern household and firms make decisions to allocate limited resources
 * 2) Supply- the different quantities of a good or service that a firm is both willing and able to produce in relation to different prices
 * 3) Determinants of Supply- non-price factor that affect the supply a firm is both willing and able to produce
 * 4) Ceteris Paribus- a phrase that means all other factors remain equal or constant
 * 5) Factors of Production- four types of resources that allow an economy to produce its output (land, labor, capital, and management)
 * 6) Capital- the factor of production that comes from the investment in physical capital and human capital. (examples: roads, schools, and factories)

Graph Showing Decrease in Supply of Automobiles:




 * This graph shows how the determinant of demand (decrease in number of producers) shift the supply curve to the left, there producing a smaller quantity in relative to the prices before the disaster that hit Japan. The demand curve does not shift because of ceteris paribus.

Evaluation: When the supply curve shifts towards the left, the equilibrium price for the product increases and the equilibrium quantity decreases. Assuming that the original equilibrium (before the tsunami and the earthquake) was in a stable place that satisfied both consumers and producers, the best way to solve this temporary problem would be to make up for the production cutbacks later on. This may involve setting up deals with other automobile manufacturers, so that Nissan automobile factories (such as the ones in Mexico) could have more parts to produce more cars. This would increase the number of producers supplying car parts and shift the demand curve towards the right. But because this must be planned out and probably won’t happen right this instant, it is said to be part of the long-run. This could also happen in the case of a government subsidy, but in a world economic crisis like this one, this scenario would be more unlikely.