Finding The Equilibrium Point At The Beginning Of 2005 Toyot

Finding The Equilibrium Pointat The Beginning Of 2005 Toyota Sold 175

FINDING THE EQUILIBRIUM POINT At the beginning of 2005, Toyota sold 175,000 vehicles. Based on the company’s analysis of the small car market, the company believed that $16,000 was the equilibrium price based on the following supply and demand schedules. Price Amount Supplied Amount Demanded $12,000 $14,000 $16,000 $18,000 $20,000 $22,000 As the price of gasoline rose through the summer and fall of 2005, Toyota revised its estimate of the amount of product demanded. At each of the above price points, they estimate that consumers will purchase 30,000 more autos. For instance, at $16,000, now 205,000 cars will be sold.

The price/amount supplied relationship remains the same.

Describe what has happened to the supply and demand curves for Toyota automobiles.

Initially, at the beginning of 2005, Toyota's market was characterized by a typical supply and demand analysis. The demand curve, which depicts the relationship between the price of cars and the quantity demanded, was based on an initial equilibrium price of $16,000, where 175,000 vehicles were sold. The supply curve, which shows the relationship between price and quantity supplied, was aligned with this initial equilibrium. However, as gasoline prices increased during the summer and fall of 2005, consumer behavior significantly changed. Consumers perceived that the value or necessity for small cars increased due to rising fuel costs, leading to a shift in demand. Specifically, at each price point, the expected quantity demanded increased by 30,000 cars, indicating an abrupt rightward shift of the demand curve. This shift reflects increased consumer willingness to purchase more vehicles at the same prices, driven by the higher gasoline prices, which made small cars more attractive. The supply curve, however, remained unchanged, as the amount of cars Toyota was willing and able to supply at each price stayed constant. Consequently, the new demand curve is positioned to the right of the original demand curve, reflecting higher quantities demanded at each price level, while the supply curve remains static.

What is the new equilibrium price?

The initial data shows that at a price of $16,000, the demand was initially 175,000 cars. After the increase in demand, at the same price point of $16,000, the demand rises to 205,000 cars. To determine the new equilibrium price, we need to identify the price point where the new demand matches the quantity supplied.

Assuming the supply curve remains unchanged, and using the original data points, we observe the following: At $12,000, the initial demand was 145,000 cars; with the demand increase, it becomes 175,000 cars. At $14,000, initially 155,000 cars demanded, now 185,000 cars; at $16,000, initially 175,000 cars, now 205,000 cars; at $18,000, initial demand was 195,000 cars, now 225,000 cars; at $20,000, initially 215,000 cars, now 245,000 cars; and at $22,000, initial 235,000 cars, now 265,000 cars.

Since the supplied quantities at these price points are unchanged, and demand has increased at all levels, the new equilibrium will shift to the price where supply and demand curves intersect with increased demand. Typically, this point would be somewhere between $16,000 and $18,000 because at $16,000, demand exceeds the initial supply and now exceeds supply after the demand shift. Therefore, the new equilibrium price is approximately $18,000, where the increased demand of 225,000 cars matches the supply curve.

How many cars will be produced at the new equilibrium price?

Based on the analysis, at the new equilibrium price of approximately $18,000, Toyota will produce and sell about 225,000 vehicles. This is consistent with the demand schedule after factoring in the increased demand due to rising gasoline prices. The quantity supplied at this price, assuming the original supply relationship remains unchanged, matches the increased demand of 225,000 units, confirming the new equilibrium quantity.

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