Too+many+cars,+too+few+buyers+by+Woo+Chang

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

=TITLE OF EXTRACT: Too many cars, too few buyers=

=SOURCE: The Economist= http://www.economist.com/node/21547788

=DATE EXTRACT WAS WRITTENFeb 18, 2012=

=DATE CURRENT EVENT WAS WRITTEN: Feb 23, 2012=

=EXPLANATION OF THE ECONOMIC THEORY RELATED TO THE ARTICLE:= This article discusses that in the world, there are too much supply of cars compared to demands of cars. As a result, some premium car companies profit greatly while some common car firms are not even making break-even point. In the point of view of a relatively small sized firm, Peugeot, is making a loss because there is a huge gap between its supply and demand-high supply vs. low demand. The major factor that contributed to low demand of Peugeot's cars is taste change and increasing number of substitutes. As people desire for more stylish, streamlined, and premium cars, people are not much interested in cheap common cars. Also, as other companies produce many different types of cars that can substitute, the demand for Peugeot's car decreases. Substitues are produced by many firms including rising Korean firms and German premium firms. On the other hand, supply of the firm has gone up because the technology has advanced and the company has set up more number of factories. It seems like the car market is a monopolistic competition because around ten companies take up more than 90% of the market. In this monopolistic competition, the situation for Peugeot can be explained as making a loss in a short run.

=VOCABULARY TERMS AND DEFINITIONS:=
 * supply: the amount of a good or service that the producers are willing and able to produce.
 * demand: the amount of a good or service that the consumers are willing and able to purchase.
 * taste: changing view or trend towards a product.
 * substitute: a good or service that can easily replace another good or service.
 * break-even: Just making enough money to cover the total cost + opportunity cost.
 * monopolistic competition: A type of market that sits between perfect competition and monopoly.
 * short run loss: Making a loss (not even making enough money to cover total cost + opportunity cost) in a time period when at least one factor of production is fixed.

=DIAGRAMS:= Supply & Demand Curve for Peugeot firm-demand shift left

Supply & Demand Curve for Peugeot firm-supply shift right

Short Run Loss of Peugeot firm

=EVALUATION:= I agree with the article's point that the small firms need some time to move their brands up and reach break-even point. At the moment, the small firms such as Peugeot are losing money due to the huge discrepancy between high supply and low demand. The article suggests that the small firms are trying to make their brands up so that they can sell higher priced small cars but the process will take a lot of time. This is true because the established taste for premium cars last long and there are other prominent firms that are constantly launching new models. Therefore, it is not only challenging but also time-consuming for the small firms to make their brands up. Although it will take some time to make the brands up, the small firms will eventually reach break-even points in the long run because other extremely suffering firms will leave the industry which will lower the high supply again. Some actions could be taken to boost the small firms quickly. First of all, the individual firm should promote as much as possible: the firms should advertise their products effectively. The government also can take actions by imposing more tax on big firms or subsidizing small firms. If the government impose tax on big firms, the government would make some revenue because the big firms' premium cars are relatively price inelastic due to high brand loyalty. Therefore, imposing tax on big firms is a good idea to boost the small firms quickly. Subsidizing small firms would also quickly boost the small firms because with the money, the small firms can come up with new models and have better marketing strategies. However, there are opportunity costs because the money used for subsidizing can be used to improve other areas in the nation such as education and health care. In my opinion, taxing is the best idea among the three.