Member of the Month

KilaTsunami
October, 2024

Online

Welcome to the Newschoolers forums! You may read the forums as a guest, however you must be a registered member to post. Register to become a member today!

Econ question!

profile picture
LS.
Posts: 1841 - Karma: 858

Suppose a survey is taken concerning car safety. According to the survey, peoplestrongly desire safer cars and indicate they are willing to pay substantially more for safer cars. Using this information, one auto firm adds numerous safety features to its car, raisingthe price by several thousand dollars. Sales drop sharply, and the firm loses profits. What went wrong?

looking for something more than price was too high thanks!

Sep 15 2010 1:15AM
0 0
profile picture
Shadows
Posts: 8068 - Karma: 43
its hard to say.

what demographic was surveyed?
what features were added in comparison to what the survey results were?
what were competitors doing?
what time of year was it when the sales dropped/survey taken?
how did the survey questions relate to the final product?

basically, people are idiots and have no idea what they want.
Sep 15 2010 1:23AM
0 0
profile picture
Rachy
Posts: 4355 - Karma: 2,761
I forgot the name of the curve... but it exists.

As in... maximizing the price and profit.

Your answer should be in your section referring to that curve.

Yes people are willing to pay more, but only to a certain extent. Maybe that amount was $2000 and they did $3000 which is a point that doesn't fall on that curve.
Sep 15 2010 1:34AM
0 0
profile picture
Shadows
Posts: 8068 - Karma: 43
or this.
market demand/marginal revenue curve.
what kind of answer are you really looking for?
Sep 15 2010 1:38AM
0 0
profile picture
PeterWojnar
Posts: 3937 - Karma: 678
In the end, it's about what's across the board.

If ALL the car manufacturers raise prices and increase safety, then people will pay more for safer cars. If ONE manufacturer raises prices and increases safety, people will buy other manufacturers because it's cheaper.

People don't give a shit about their lives in real life, only in theory will they pay more unless they're forced to.
Sep 15 2010 1:39AM
0 0
profile picture
Rachy
Posts: 4355 - Karma: 2,761
sounds familiar.....

economics was so long ago.....
Sep 15 2010 1:44AM
0 0
profile picture
COskier
Posts: 1066 - Karma: 131
I can confidently answer this question. The answer is that it is a ridiculously shitty question if that is truly all the info you were given. Just give them some shit about the sample group and the data collected.
Sep 15 2010 1:44AM
0 0
profile picture
el_chupacabra
Posts: 639 - Karma: 14
well for one, the car market is generally very inelastic, in other words a shift in price will have a low to negligible effect on quantity demanded (an almost vertical demand curve), if you think of real life, the general trend of people is to buy a new car every 8-12 years or so, for instance you aren't going to buy a new car right after you've just bought another even if it has new safety features (this is very different compared to something such as ipods because people tend to buy the brand new model even if they already own a previous model with only slightly inferior capabilities)

so simply put, the car seller substantially increased expenses to themselves while realistic demand for the product remained relatively constant so naturally they lost more money
Sep 15 2010 1:45AM
0 0
profile picture
COskier
Posts: 1066 - Karma: 131
You can't make broad sociological arguments in an economics response, especially when the question gives the info it did. That isn't econ, it psychology.
Sep 15 2010 1:47AM
0 0
profile picture
COskier
Posts: 1066 - Karma: 131
No
Sep 15 2010 1:52AM
0 0
profile picture
el_chupacabra
Posts: 639 - Karma: 14
well that was helpful, care to explain or just wanna be a douche?
Sep 15 2010 1:53AM
0 0
profile picture
icon1234
Posts: 3081 - Karma: 1,475
umm it would be elastic i think with your theory.
Sep 15 2010 1:54AM
0 0
profile picture
COskier
Posts: 1066 - Karma: 131
Well, read it, nothing you just wrote was logical. Different models of cars of different levels of utility. There is a reason everybody isn't driving around in used pintos.
Sep 15 2010 1:56AM
0 0
profile picture
icon1234
Posts: 3081 - Karma: 1,475
I mean the demand curve for cars, will most def be not inelastic. It would be elastic, as price goes up demand would def decrease as the commodity is not necessary such as food, water, gas. If cars all go up 10k, people will just repair their broken cars, and not upgrade.
Sep 15 2010 1:57AM
0 0
profile picture
COskier
Posts: 1066 - Karma: 131
I should amend this, the whole argument was so illogical that this wasn't even the largest problem. Have you taken econ?
Sep 15 2010 2:00AM
0 0
profile picture
alex.bgk.
Posts: 607 - Karma: 74
possibly some sort of bias or error in the survey

say a disproportionate demographic of people who were surveyed compared to the demographic of consumers.  Or maybe it was worded in a way that made purchasing a safer car sound more favorable that it really is. 

Or the car manufacturer could have gone too far and the several thousand dollars that the price was raised is disproportionate to the "substantial" increase people were allegedly willing to pay
Sep 15 2010 2:03AM
0 0
profile picture
el_chupacabra
Posts: 639 - Karma: 14
right, but the point is if you've got a car that's maybe 5 years old or so and still runs fine, the general population is not going to go buy a brand new car just because it has some new safety features, if you happened to already be in the market for a car obviously you would prefer this new safe car if it was logical for the consumer's income, but the total population of consumers will not really change (there will not be an influx of new consumers), and so the QUANTITY DEMANDED remains fairly constant and the revenue made off the new safe car will not make up for it's production expenses

you just simply explained that a safer car would obviously be a normal/superior good, but in an inelastic market, this distinction has a limited effect
Sep 15 2010 2:07AM
0 0
profile picture
icon1234
Posts: 3081 - Karma: 1,475
Okay if this is for an econ class, this is what I would write as my answer, this may not be the answer your teacher is looking for, but this makes sense to me. Since suppliers are forced to spend more money for the safety upgrades, that would constitute a shift in the supply curve to the right. We are also told that consumers will purchase more cars if safety upgrades are added, so we know based on this given information demand will shift to the right as tastes/likes of consumers change. However since the quantity demanded is now lower then the equilibrium price before the shifts, we can conclude that the shift of the supply curve was greater then the shift in the demand curve.

If he wants the reason why this is the case, then I don't know what to tell you. It could be like what others have said the survey results were not accurate or something. However if he just wants to know what physical caused the drop in quantity demanded that is the mechanic in the first paragraph.
Sep 15 2010 2:11AM
0 0
profile picture
COskier
Posts: 1066 - Karma: 131
Ummm, "According to the survey, peoplestrongly desire safer cars and indicate they are willing to pay substantially more for safer cars."


You can't just discount the limited info there is in the question.
Sep 15 2010 2:13AM
0 0
profile picture
el_chupacabra
Posts: 639 - Karma: 14
although i would argue that people tend to repair cars and not upgrade anyway, if a new toyota price was lowered from 27 k to 22 k, would substantially more people enter the market? that's a pretty subjective question but my experience would say no, people tend to keep cars for as long as they will last before buying a whole new car, the exception would be people with more disposable income/upper class and these people make up the minority of the general population
Sep 15 2010 2:14AM
0 0
profile picture
COskier
Posts: 1066 - Karma: 131
I go back to, have you ever taken an econ course?

You can't just add information to a given hypothetical situation.
Sep 15 2010 2:19AM
0 0
profile picture
el_chupacabra
Posts: 639 - Karma: 14
yes, PEOPLE ALREADY IN THE MARKET are willing to pay substantially more for safer cars, it doesn't mean substantially more people will enter the market because new safe cars are available, if you're not currently in the market for a car, most people would say they wouldn't care two fucks about this new car or that new car especially when it is only superior in one aspect of the car to previous models
Sep 15 2010 2:20AM
0 0
profile picture
COskier
Posts: 1066 - Karma: 131
wtf is this?
Sep 15 2010 2:20AM
0 0
profile picture
el_chupacabra
Posts: 639 - Karma: 14
yea i took ap macro and micro in high school and policy economics in college, what have you taken? because i have yet to see a thought out/intelligent post that actually tries to answer the question yet from you
Sep 15 2010 2:22AM
0 0
profile picture
COskier
Posts: 1066 - Karma: 131
The number of people in the market for a new car doesn't change. If anything it might go up because some people might want the new safety features.

Seriously dude, give up, you aren't thinking logically.
Sep 15 2010 2:23AM
0 0
profile picture
icon1234
Posts: 3081 - Karma: 1,475
Well you said that demand inelastic, and would be a almost vertical line, so that means a increase or decrease in price is not going to affect the quantity demanded. I would say that a decrease in price would most def cause more people to buy a new car. There plenty of people out there today who would do it, otherwise you wouldn't see all the car commercials about specials. If demand was inelastic, it wouldn't matter, thus demand has to be elastic. Or at least not even close to a vertical line. There is a chance that I may be getting some of my principles mixed up here, took my econ awhile ago, but i'm pretty sure my logic makes sense.
Sep 15 2010 2:25AM
0 0
profile picture
el_chupacabra
Posts: 639 - Karma: 14
That's literally what i just fucking said and was the point i was trying to make, but thanks for not reading or even trying to comprehend what i was saying, i'm sure the op really appreciates your 4 word insights
Sep 15 2010 2:27AM
0 0
profile picture
COskier
Posts: 1066 - Karma: 131
Yes I was saying that more people don't need to enter the market in order for them to sell more cars, they simply need to attract those that are in the market. Also, this point is moot seeing as it has nothing to do with the question in the first place.
Sep 15 2010 2:30AM
0 0
profile picture
Bob_Loblaw
Posts: 8384 - Karma: 38
It's a fundamental problem with surveys. People will always say they want more and are willing to pay for it, when in actuality they are not at all. It has everything to do with how the questions are posed. Nobody will say that they don't care about safety when asked directly if it's important to them. A better way to survey would be to ask "what's most important to you in a vehicle?" The surveying problem is primarily found in the public realm, when it comes to public goods. However, your professor applied it to the private realm, where it is rarely found in reality. This is a major reason the public sector is so economically inefficient, because the consumers don't have a "dollar vote".
Sep 15 2010 2:31AM
0 0
profile picture
Fish_Sandwich.
Posts: 9108 - Karma: 16
That's marketing not econ.
Sep 15 2010 2:32AM
0 0
profile picture
Rachy
Posts: 4355 - Karma: 2,761
yeah... to anyone else who feels like answering this question or any other econ questions.

in Econ, you can't assume any other facts than what you are given.

From this you are told that people in the market for a new vehicle are willing to pay more for a safer vehicle.

You assume there are no outside conditions affecting the market.

It comes down to how much more they are willing to pay. They may see a rise in marginal profit if their cost is $800 to make it more safe and they charge $2000 more.... but they may see a fall in profit should they charge $4000 more because people are willing to pay... but not that much more.

It has nothing to do with old cars or the economy failing or anything else... the question is not loaded, it is pretty basic and an introductory question. I'm remembering this from 4 years ago.
Sep 15 2010 2:36AM
0 0
profile picture
icon1234
Posts: 3081 - Karma: 1,475
I was wrong about one thing, supply would shift to the left not right. So the reason why quantity demanded is lower before the shifts, is because supply shifted more to the left, then demand moved to the right.
Sep 15 2010 2:37AM
0 0
profile picture
COskier
Posts: 1066 - Karma: 131
It is true that substantially isn't exactly an obvious amount so this could be what the prof was looking for.
Sep 15 2010 2:43AM
0 0
profile picture
COskier
Posts: 1066 - Karma: 131
Though I still say that the best answer is that their data/analysis was flawed.
Sep 15 2010 2:44AM
0 0
profile picture
Rachy
Posts: 4355 - Karma: 2,761
It's basic econ.... pretty sure you aren't supposed to make assumptions.
Sep 15 2010 2:47AM
0 0
profile picture
omIV
Posts: 1950 - Karma: 306
This pretty much sums it up.

When you get into higher level behavioral economics is when the issues with why people say one thing and do another start to be examined more deeply. But the question given is pretty straight forward.
Sep 15 2010 2:58AM
0 0
profile picture
COskier
Posts: 1066 - Karma: 131
Definitely. I was saying that above. But if your data doesn't support your hypothesis. You can determine that either your hypothesis was incorrect or your data was flawed.
Sep 15 2010 3:00AM
0 0
profile picture
PeterWojnar
Posts: 3937 - Karma: 678
It's not a standalone arguement, it's to be used in conjunction with some of the other stuff in this thread.

and Econ is more psychology than you think... psych makes its way into many places you don't think it would.
Sep 15 2010 3:08AM
0 0
profile picture
COskier
Posts: 1066 - Karma: 131
Um, if you were writing a paper about a model or something that might be true. However, not in a hypothetical q and a, thats not how low level econ classes work.
Sep 15 2010 3:12AM
0 0
profile picture
PeterWojnar
Posts: 3937 - Karma: 678
Fair enough, however, we don't know the context. This is a question posed for any and all answers, and I'm contributing something that can be helpful -- or not -- and that isn't just a restatement of something that's already been said.
Sep 15 2010 3:15AM
0 0
All times are Eastern (-5)