Assignment Instructions
For Term Paper #1 you are required to pick a product or service you use in your everyday life and describe the market for this product. Please make sure to address the following questions:
What factors influence the demand for this product? What factors influence the supply of this product?
How have these changes in supply and demand affected the equilibrium price of this product?
Do you anticipate any changes to the demand and/or supply of this product in the near future? If so, what is driving these changes?
Side note: I have three vehicles that are made by Toyota because they are reliable vehicles
Toyota Tundra
Toyota Tundra, which is manufactured by the Japanese company Toyota, is a pick-up truck that is produced or manufactured by keeping in view contemporary trends in American Pick-up trucks’ market. The first Toyota Tundra versions were manufactured in the year 1999, which objective was to capture a sizeable market – share for profit. Before the introduction of a Toyota Tundra, most of the companies that were producing full-size pickup trucks were Americans. Toyota was the first Japanese companies, which manufactured a full-size American truck. It was a bold move, as Toyota emphasized different kinds of automotive markets, such as luxury and utility automobile markets. For instance, Toyota produces the Prius, which is a high-utility car (Car Covers, 2018). Study about the pick-up trucks, which are produced by Toyota in the United States, reveals that Toyota Tundra was not the first pick-up company produced in the United States. Before the introduction of Toyota Tundra, Toyota produces Tacoma, which was a compact size pickup truck.
These decisions, to produce pickup trucks of various types (in the United States), suggest that Toyota considers the pickup truck market highly lucrative and segmented. It is also essential to understand that automobile manufacturing companies prefer to invest in those industries/markets (automotive) that have higher returns. All most all the studies, about pick-up truck market (full-size) suggest that pick-up truck market, of the United States, is more lucrative than the other pick-up trucks’ markets around the world, despite the intense competition between national and international manufacturers in the US market. According to the Technavio’s report, the Pick-up trucks’ market in the United States will grow at a 4 % rate, which is an attractive incentive for existing manufacturers to expand their operational capacity. It also suggests that in coming years, demand for the pick-trucks, both compact and full-size, will increase (Business Wire, 2018).
Factors that Influence Demand
There are two major factors which influence demand, and these factors overlap one another. One of these primary factors, which influence is preferred based on culture (taste). In economics, preference is a very relevant factor that influences demand for a product. In the case of the Toyota Tundra, it is a preference for pick-up trucks, of full-size, that positively influence demand for the product. In some regions of the United States, especially in the Southern States, pick-trucks are preferred over utility automobiles (cultural factor); however, preference based on culture is not the only factor. The utility of pick-trucks is another relevant factor, which influences demand for pick-up trucks. Studies reveal that pick-trucks provide a “higher-value proposition.” Also, pick-up trucks have both commercial and non-commercial applications. For instance, the additional capacity and towing capability augment the utility of Pick-up trucks, which include Toyota Tundra. Therefore, it is the taste and utility factors which influence the demand for pickup trucks, including Toyota Tundra that is manufactured in keeping in views these two factors.
Factors that Influence Supply
The factors which influence the supply side, for Toyota Tundra, are 1) Growth Projections of the market (demand), 2) Competitiveness of market, 3) Size of Market, 4) Changes in Market Share and 5) Lucrativeness of the market. For instance, we learn that the American market for large size pick-trucks is projected to grow at 4% rate. It is an incentive for companies to expand their supply to accommodate the increase in demand for the large-size pick-up trucks. Also, the preference of users or customers is also considered, as many reports suggest that those pick-up trucks that are manufactured by the prevailing trends and preferences have a higher demand. The Toyota Tundra is considered America Truck, as it is a manifestation of prevailing demand that pertains to large size trucks.
Other factors, such as the size of the tax on the automobile industry, duties on imported pickup trucks, and quality of the local transport system also affect the supply side. (Note: it is essential to understand the overall economic conditions also strongly influence the supply of Toyota Tundra.)
Possible Changes in Price
It is an economic fact that in a free-market economy, demand and supply are the most powerful factors as they determine both price and output of a quantity. As most of the free-economy markets are not competitive markers; therefore, changes in demand for a product do not immediately affect prices. For instance, the sales of Toyota Tundra dropped, in the year 2017, around 13% (in February). However, this dwindles in sales did not affect the price, which suggests that considerable changes in quantity (decrease) only slightly affect prices. However, it is assumed that lowering the price would have a substantial impact on sales. However, any statistical or empirical evidence does not back this assumption.
Possible Changes in Demand and Supply
We can project an increase in the supply of the Toyota Tundra because it is projected that the pickup truck market will swell at around 4%. It means that demand for pickup trucks will increase, which will compel supply to expand too. Therefore, in coming with the size of the market will increase and the demand/supply of Toyota Tundra will also change. However, how the changes in demand and supply will affect prices are hard to project. We have already seen those changes in demand, for Toyota Tundra, in February of the previous year (2017), did not affect prices. However, a constant decrease in sales will affect the price (Druzin, 2017).
Demand and Supply are the most relevant factors that pertain to the price and the size of the output. However, it is essential to acknowledge that in some markets, changes in demand and supply do not immediately affect prices, especially in the automobile industry.
Graphical Representation
References
Business Wire. (2018, March 31). Top Factors Driving the Pickup Truck Market in the US| Technavio. Retrieved from https://www.businesswire.com/news/home/20180331005022/en/Top-Factors-Driving-Pickup-Truck-Market-Technavio
Car Covers. (2018, January 1). History of the Toyota Tundra. Retrieved from https://www.carcovers.com/resources/history-of-the-toyota-tundra/
Druzin, R. (2017, March 1). Toyota full-size Tundra sales drop by nearly 13 percent. Retrieved from https://www.mysanantonio.com/business/local/article/Toyota-full-size-Tundra-sales-drop-by-nearly-13-10968785.php
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