Your Economics Opinions Please?

Question

Would the following factors increase or decrease the ability of domestic auto manufacturers to raise prices and profit margins. Briefly, why?

a. Decreased import quotas

b. Elimination of uniform emission standards

c. Increased automobile price advertising

d. Increased import tariffs (taxes)

e. A rising value of the dollar, which has the effect of lowering import car price

Answer 1

A: Decrease ability - because it will lead to increase in foreign supply thus increasing competition level.

B: Increase ability - because this will reduce production costs.

C: Increase ability - Increased advertisemes will lead to higher demand for cars.

D: Increase ability - because it will lead to decrease in foreign supply thus reducing competition level.

E: Decrease ability - because it will lead to increase in foreign supply thus increasing competition level.

Answer 2

a. I don't think this would have a terribly large effect. I would think that the best that can come from this event would be selling more cars, but without raising the price because that might negate some from the sales increase.

b. This would help the profit margins because they'd need to use less specialized parts in their cars.

c. I think this would hurt the profit margins.

d. This would hurt a good amount of the competition which is always good for any company.

e. Obviously the lower import prices wouldn't be good, but if the dollar went up then gas prices would go down, which means the domestic manufacturers would have more of a selling point in their more 'American' cars, as opposed to the common import selling points of fuel efficiency and general economy.

Thats the best I can do...

Answer 3

a. increase. less supply. supply shifts left.

b. decrease. more production. more entrants into market. supply shifts right.

c. increase. increase in cost of producing good results in higher final price of good.

d. increase. less supply. supply shifts left.

e. decrease. international supply increases. supply shifts right.

Hope this helps. Sounds like an intro econ course. Your textbook will have similar examples.

~Good luck

Answer 4

a.  do you mean allowing fewer cars to be imported?  This would allow domestic firms to collectively sell more cars.  assuming there is still competition among domestic firms, it may not result in higher prices or margins, but overall profit could rise because more units are sold

b.  Elimination of uniform standards leaves the door open for state by state standards.  That could actually hurt profits by raising the costs of compliance and making the competative landscape more difficult to predict.   But lets assume you mean just relaxing or eliminating emmissions standards.   All manufacturers could reduce costs under that scenario, but again, due to the competative structure of the industry, they might have to lower prices to retain the market share they already have, and give up most or all of the net profit the cost reduction would otherwise have afforded.

c:  if you advertise based on price, its probably to advertise that you have lower pricing than your competitors.  lets say you are already lower than your rival.  you could in theory spend more on advertising, actually raise your prices closer to the competitor but still under their price, and accomplish what your question contemplates.  but if you get too close, the competitor can simply respond by cutting prices a little and negating your campaign unless you respond, in which case you have a price war.  not good for profits

d.  import tariffs reduce competition from foreign competition.  the battle is then on for your share of the increased domestic market.  I could see all the domestic firms raising their prices and margins, as long as they spend some of the money on quality, features and/or advertising to rationalize the increases.   Tariffs work against the consumer in the end, because they create a shield that allows the small number of domestic firms to avoid enough competition to consume some of the difference in pure profit.  If there were more domestic firms, this would be a smaller risk, but its not that hard for three big firms to keep an eye on each other and end up with what seems like collusion on price

e) rising dollar lowers imports, makes domestics cut prices and margins fall