BUSINESS GAME

Business Game

Business Game

The automotive industry plays an important role not only in the United States, but in the world in general. When asked how important the Automotive Industry is, Ford CEO Alan Mulally stated that “we're nearly 10 percent of the U.S. Gross Domestic Product (GDP), and if one of the automobile manufacturers gets into serious trouble, it has tremendous implications for the entire industry.” (Fisher, 2008) The automobile industry has been struggling over the past couple years, and the government finally stepped in to try and alleviate some of the burden. In the United States, we as Americans not only rely on the automobile industry, we depend on it. These dependencies are imperative for us getting to work when there is not a viable alternative, the transport of goods and services, and to generate employment. The automotive industry is one of the most important industries in the world. It provides employment for millions of people around the world, generates billions of dollars in revenue, and finally provides for other related businesses and services.

In the automobile industry, the shifts in price elasticity of supply and demand affect the entire industry significantly. Similar to other markets, the costs of materials are not always fixed as well as the taxes. There are times when the cost of materials or the rate of taxes increase and these increases are passed down to the consumer. These types of increases are usually passed down by the automotive industry to the consumer who is purchasing the product. As the prices of automobiles increases, the demand for the same decreases. The automotive industry has a price elasticity of demand that can be either elastic or inelastic. Living in a major city such as New York where alternative transportation such as trains, busses, and taxi's that are readily available and cheaper would equate to elasticity in the demand. This would also be true if the gas and oil prices were high as well. The automobile at this point would be considered a luxury and not a necessity. The substitutes (trains, busses, and taxi's) that would be readily available would lessen the demand for automobiles as their prices increase. In places such as Northwest New Jersey, where public transportation is not readily available and is very limited, the price elasticity of demand would be inelastic. Automobiles would then be considered a necessity rather than a luxury.

The Federal Government's “cash for clunkers” program was created to help bail-out the automotive industry during these struggling economic times. One of the Ten Principles of Economics is “People respond to incentives”. This cash for clunkers program which guaranteed up to $4,500 on trade-ins for a new vehicle generated over “690,000 sales and will cost the taxpayers' over $2.9 billion.” (USA Today, 2009) This program did initially give the automotive industry a boost, but the month's following this program showed a decline in sales. The cash for clunkers program was to drop the price of supply to increase the ...