The the higher the price of a good, the

The concept
of demand and supply is that the law of demand is set to be when the higher the
price of a good, the lower is the quantity demanded, thus vice versa. As of the
law of supply is when the higher the price of a good, the higher is the quantity
supplied, thus vice versa too.

From a
recent article found on a market of a car, a graph based on the law of demand
and supply is sketched. From the graph, it shows a 3 year progress in the price
of COE with accordance to the availability and demand of cars in Singapore.

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In Singapore,
COE is imposed to maintain the number of cars in the country due to certain
reasons that the government deem a need. The COE has a 10 year span for owners
to use their car. Along with the imposed COE, bought in Singapore are called
de-registered car. When their COE ends, car owners must cars scrap their cars unless
renewed. Thus, with these knowledge, information from the article are extracted
and put in a graph.

Based on the
graph as how the law supply has set, the higher the price of a good, the higher
the quantity supplied is. In 2014, the price of COE is set at Price 3. The price
is at its low price, thus quantity supplied decrease too as many people prefer
to buy a brand new car rather than renewing their COE. The COE count for the
year 2014 is that only about 2,500 people renewed their car.

In 2015, the
number of car owners renewing their COE instead of purchasing a new car
increased. This is the effect of price increase in COE which is at Price 2.

However, the
price of COE keeps increasing that in 2016, the number of car owners renewing
their COE triple the number of the previous year which is more than 30,000
people. Price 1 that was set in this year increase quantity supply.

The price
set in those years made the demand and supply elastic. When the price of COE
decreased which is at its low price, demand is high. More people are willing to
spend on car as it is quite cheap. However, with the low price, it results in
low quantity supply. Suppliers are not able to provide enough cars for high
demand.

It is how it
was in the year 2015 as well. The price of COE set at Price 2 was a bit higher
than the year before. Thus, only a few thousands car owners are willing to purchase
a new car than renewing of COE.

When Price 1
of COE was introduced, the quantity supplied increased too. This is due to more
people renewing their COE rather than buying a new car which is now expensive than
in 2014.

Factors
that affecting the demand and supply

There are a
few factors that affect the demand of the car.

Consumer’s
income and preferences can contribute to the factors that affect the demand. For
instance, when consumers’ income rise, thus they are willing
to spend more including luxury items such as car. Hence, demand
increases. Same goes when the income falls from usual, they don’t spend very
much and keep to budget. Thus, demand decrease.

Cars are
like other products which come in different models or features. Like iPhone for
example, when there is arrival of the latest car model, people especially those
who are really interested in modelled car, demand will increase. Vice versa
when there isn’t any latest model to be introduced, demand remain the same or
falls.

COE prices
are usually set by demand. When car owners expected that the COE price shall
increase the future, they are to purchase the desired car now before increased.
Thus, demand increase. However, when they know or expected that the price of
COE shall decrease soon, demand will decrease as they are willing to wait to
purchase the cars at a lower price.

When demand
increase, the demand curve will shift to the right. When demand decrease, the demand
curve will shift to the left.

There is
also a few factors that affect the quantity supply of cars.

Firstly,
they shall need to account the provisions for annual
vehicle growth rate based on the vehicle population at the end of the year.
According to the article found and referred to, the Land Transport Authority (LTA)
made an announcement that the revised annual growth rate for the number of cars
in Singapore is to 0% from the current 0.25%. This will take effect from February
2018.

The COE
price mainly is the contributor to the quantity supply of car in Singapore.
When COE price is high, car owners choose to renew their COE than of purchasing
a new car. Thus, leaving the quantity supply high. When COE price is low, car
owners took the opportunity to grab and purchase a new car instead of renewing
their COE. Thus, the quantity supply decrease. Suppliers may experience shortage
due to the high demand.

When quantity
supply increase, the supply curve will shift to the right. When quantity supply
decrease, the supply curve will shift to the left.

Price
elasticity of demand for car

The closer
the substitutes, the more price elastic the product. Car is a transportation
which one can use to travel on ease and are able to save time on journey. However,
in Singapore, even when an individual do not have a car, they are still able to
travel around using the public transportation provided by the country. Even though
it is not a personal use and can be time consuming at some point of time,
Singapore is making progress in the public transportation for its citizens. Thus,
the price for cars in Singapore is considered price elastic.

Today in
Singapore, most places is accessible to the nearest bus and MRTs. Citizens can
travel around easily. Thus, it is not necessary for an individual to own a car
in this country. With this in mind, price of a car here is elastic. However,
some people work in a places that is not quite mature. Thus, there is a need
for car for such individuals. In this matter, price in inelastic as they need
to have a car no matter the price.

 

Income elasticity
of demand

It
measures the responsiveness of the demand of a good when income changes. When income
elasticity positive, it is called normal goods. When income elasticity is
negative, it is called inferior goods.

Normal goods
are when income increases, demands for such goods increases. However, there is
two types of normal goods. They are called essential goods and luxury goods.

In Singapore,
car is not a necessity. It is more of a luxury to most car owners in the
country. Thus, it is a luxury good, not an essential goods.

When there
is a rise in income, demand for car increases.

Cross
elasticity of demand

Aside
from price elasticity, there is cross elasticity of demand which measures the
responsiveness of the quality demanded of a good when price of another good
changes. 

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