Q. You are thinking about purchasing a local car dealership (selling new cars exclusively), but you are concerned about how a number of possible events might affect the market for new cars. Using your knowledge of supply and demand, describe the expected impact that each of the following events would have on the market for new cars. You should describe the expected effect on market prices and sales levels.
To keep things simple, consider each scenario below independently (i.e. ignore the other scenarios).
a. The Federal Reserve is expected to increase interest rates, thereby increasing the costs of borrowing for car loans. What is the impact on the market for new cars?
b. Assume that your dealership sells only cars that are produced in the United States. A tsunami in Japan disrupts the production of Japanese-made cars. What is the impact on the market for new cars?
c. Improvements in technology have expanded the life of most cars by almost 50,000. This has created an increased supply of used cars. What impact does this have on the market for new cars?