Toyota+to+restart+Japanese+output+at+reduced+capacity+-+Aria+Tedjarati

Toyota to restart Japanese Output at reduced capacity BBC http://www.bbc.co.uk/news/13009539 8 April 2011


 * Brief Explanation :** Due to the 9.0 magnitude earthquake and the tsunami that hit Japan on March 11th, production at all of Toyota's 18 had been suspended. However, Toyota will resume its production in all of its Japanese factories starting April 18th, but it will be at a reduced capacity. This reduced capacity is due to a shortage of parts because of the chaos and confusion from the earthquake and tsunami. This is an example of a market failure. The company is unable to perfectly utilize its factors of production, thus leading to less profit and consequently a market failure. This market failure is caused by the effect that a natural disaster had upon the mobility of the factors of production. Thus, the cause of this market failure is the immobility of the factors of production since much of the government funding has lately been spent on relief efforts. But what affect will this have upon the supply and demand for Toyota cars? Well, as the graph below shoes, the supply would decrease because the factories are producing at reduced capacity. However, the demand will remain the same and this will thus create a shortage of cars if the factories continue to produce at a reduced capacity, thus lowering the total profit of the company.


 * Vocabulary Terms:**
 * Market Failure:** A given market situation when allocation of good and services are not provided or consumed in the optimal amount.
 * Immobility of factors of production:** A cause of a market failure when resources do no always find it easy to move between industries quickly.
 * Profit:** Financial benefit which can be calculated by Total revenue - total expense
 * Supply:** The entire relationship between the quantity supplied of a good or service and its price.
 * Supply Curve:** A graph showing the relationship between the quantity supplied and the price of a good or service, holding everything else constant.
 * Demand:** The entire relationship between the quantity demanded of a good or service and its price.
 * Demand Curve:** A graph showing the relationship between the quantity demanded and the price of a good or service, holding everything else constant.


 * Graph:**


 * Evaluation:** From what this article mentions, Toyota really has no option but to wait out the crisis. For example, the government COULD be able to increase the supply by subsidizing the company, but this would be taking money away from relief efforts, and that is not an option for Japan right now. Unfortunately, everyone (both the suppliers and consumers) will be hurt because of this. The suppliers will have a reduced profit, and the consumers will have less cars to buy and their prices will be higher. Toyota has already halted production in some domestic factories and has also reduced some production in its international factories. The potential effects will not only be felt by the company and the consumers, but also by the total GDP of the country. Overall, there are no "cures" to this, unless an outside government decides to help.