Economics: Examine the main influences on the price of cars

sold. The name that is given to this effect is the substitution effect, and the result of peoples' income dropping is them buying cheaper cars. On the other hand, if peoples' income increases (maybe due to economic growth) then people are more likely to buy more expensive cars such as Audis as they have more disposable income.         Moreover, another influence on the price of cars is peoples' tastes and preferences. This means that if people prefer to have luxury cars they are willing to pay a greater amount of money for them. This means that Audi is able to charge more money for their cars compared to other companies, as people prefer to have a luxury Audi than a cheaper alternative, which is not as well made or fitted.         Furthermore, car prices are also influenced by how there price will change in the future because if prices are expected to drop rapidly for a certain car (as a newer version is to be released soon) people will be less likely to buy it at full price still. This means that the price has to be reduced for this car, otherwise demand for this car will decrease. So, if Audi are expected to release a newer version of an older car they will most likely drop the prices of the older version of the car, so that demand for them doesn't decrease too much. However, if the price for a car is going to increase in the future because of it becoming rare then people are willing to pay more for this car. This means that if Audi only create a small number of a certain type of car, people will be willing to pay more for it as it will increase in price as it becomes rarer in the future.         On the other hand, advertising has affects on the price of cars because if a car is remembered by people due to the affect of advertising, it means that when they go to buy a car they are more likely to first look at the cars that they recognise. This means that the car company is then able to charge more for this car as there is an increase in demand for it. However, if a car company doesn't advertise its cars as well as other companies it means they will have to reduce their prices because otherwise demand for that car will fall. Although advertising is very important, car prices will also be very slightly influenced on peoples' opinions of the company, and if the cars the company manufacturers are considered very unreliable, people won't be as willing to pay as much for them. This means that some car companies can charge a high price as their car is seen to be very reliable and good value for money.         Similarly, fashion also influences the price of cars because a car that is seen to be fashionable will able to be sold at a higher price. The reason a fashionable car will be able to be sold at a higher price is because people prefer to be seen with this type of car than with a car that is a lot cheaper. Therefore, in the case of Audi they are able to charge more per car as it is considered a luxury car, and is quite a popular car in the car market industry.         Car prices can also be influenced by changes in the cost of raw materials that are needed to make the car, and can be influenced by natural disasters. The cost of raw materials affects the price of cars because if the raw materials needed to make the car increase in price it will mean that the car will have to be sold at a higher price to receive the same profit as when the cost of raw materials was lower. On the other hand, natural disasters affect the price of some cars because they can cause some factories to be destroyed, and therefore, there are a limited number of this manufacture's cars available. An example of this happening is when the Japanese were hit by an earthquake, resulting in Japanese car factories being destroyed, and meaning that the prices of these cars increased as less were available.         Finally, car prices can also be affected by labour costs because if labour costs increase the cost to make each car will also increase. This means that if Audi have to pay their workers more, because of there being a lack of skilled workers around, the overall price of Audis will increase as production costs have increased.         Overall, there are multitudes of factors, which affect car prices, and most car prices change due to some main factors: Advertising, Peoples' incomes, fashion, cost of raw materials, peoples' opinions, peoples' tastes and preferences, and future prices. This means that car companies such as Audi frequently change their prices depending on economic changes.