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Industry Research Completion/Auto Industry Economic Profile

2325 words - 9 pages

The automotive industry can be regarded as a fairly important player in terms of economic impact on the national economies in which it operates. Life is full of trade-offs. People must constantly decide how to spend the limited amounts of money and time they have available. The choices that people make when faced with these trade-offs reflect their knowledge, preferences and values.Prices are the direct, internal, variable, perceived costs involved in consuming a good, that is, the factors that directly affect decisions by individual people and organizations concerning what goods and services to consume. Price changes often affect consumption decisions. For example, you may consider a particular product too expensive at its regular price, but you buy it when it is discounted. Similarly, a price increase may motivate you to use less of a product or shift to another brand.Transportation activities tend to follow this pattern. When the monetary, time, discomfort or risk costs of travel decline, the amount of mobility (measured in trips, person-miles or ton-miles) tends to increase. When costs increase, mobility declines. Price changes can have a variety of impacts on travel, affecting the number of trips people take, their destination, route, mode, travel time and which service they choose. Even a small price difference can have a large effect on travel decisions, particularly if consumers have many competitive options to choose from. For example, in a city with many destination and travel options, a modest parking fee or road toll can significantly affect where and how people travel.Economists measure price sensitivity using elasticities, defined as the percentage change in consumption of a good caused by a one-percent change in its price or other characteristics (such as traffic speed or road capacity). For example, an elasticity of -0.5 for vehicle use with respect to vehicle operating expenses means that each 1% increase in these expenses results in a 0.5% reduction in vehicle mileage or trips. Similarly, transit service elasticity is defined as the percentage change in transit rider ship resulting from each 1% change in transit service, such as bus-miles or frequency. A negative sign indicates that the effect operates in the opposite direction from the cause (an increase in price causes a reduction in travel). Elasticities can be calculated based on ratios, rather than absolute price values, such as the ratio between transit fares and automobile operating costs, or vehicle costs as a percentage of average income or wages (Victoria, 2005).As it is usually measured, automobile travel is inelastic, meaning that a percentage price change causes a proportionally smaller change in vehicle mileage. For example, a 10% fuel price increase only reduces automobile use by about 1% in the short run and 3% over the medium run. Even a 50% fuel price increase, which seems huge to consumers, will generally only reduce vehicle mileage by about 5% in the short...

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