Economics: Examine the main influences on the price of cars

Authors Avatar by ConorMorrissey (student)
19th September 2012 Economics: Examine the main influences on the price of cars          Car prices are influenced by a variety of different economic factors. Some of these affect the car market as a whole and others affect particular makes of car. The car company that this essay will be based and concentrated on is Audi. The main reason I have chosen this car manufacturer is that there are various factors that affect this manufacturer in particular.         Firstly, one main influence on the price of cars is peoples' income (The Real Income Effect), and if there is a dramatic decrease in peoples' income (maybe due to an economic crisis, such as the one the United Kingdom is currently facing) they may not be able to afford to buy expensive cars, and will instead decide to buy cheaper alternatives, or not buy a car at all (use public transport instead). This will affect Audi, as a luxury car brand because instead of people buying expensive cars they will instead buy cars, which are a lot cheaper and the affect this will have on Audi is that they will either have to sell their cars at a reduced rate, or have less cars being
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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 ...

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