Supply And Demand

The concept of supply and demand is one that has existed for centuries. There will always be a demand for an item or service, thus requiring a need for supplying that very demand or service being requested. The study of economics teaches us through the invisible hand theory that when the quantity supplied is greater than the demand, prices will fall; and when the quantity demanded is greater than the supply, prices will rise (Colander, 2004). The article that I will be discussing focuses on supply and demand in the automotive industry in 2004.

Today's consumer has become one that desires luxury, newness, and innovativeness. We have been seasoned to desire the next best thing, or biggest item. Thus, suppliers and manufactures are pressured to produce and attempt to satisfy the demands of the consumer; but, at a cost that will be profitable for the organization as well. The article I chose was written in 2004. Kim Korth's article on the new realties of supply and demand in the automotive industry discusses how the healthy buying appetite of the American consumer has begun to make it very difficult for OEM's (original equipment manufacturer) to reduce time and costs, while satisfying consumer demands. The article examines the automotive industry's attempt to keep up with consumer trends that are requiring OEM's to produce shorter product lifestyles with lower annual vehicle volumes. I can personally attest to the increase in production of new models by the automotive industry, then in 2004. In the past, the life cycle of a new model automobile was four to five years, while today the life cycle is two to three years, with an annual volume reduction from 200,000 to 100,000 unit-plus-annual volumes (Korth, 2004). This has caused OEM's to adjust from spreading manufacturing costs over a four to five year period, to a two to three year period. Of course, financially, this is a big problem for the industry. They must develop a way to satisfy the demand, while creating a price that can be affordable for the consumer, but also allow the business to turn a profit.

Personal income increased