Theoretical economic concept through its application to real-world situations



Theoretical economic concept through its application to real-world situations

The role of the automotive industry in U.S economy is quite important. Given the multiplier effect, its impacts on other industries such as glass, steel and rubber, so it is considered an industry that shows some level of welfare in the economy one that has a greater share of production in manufacturing. The automobile industry provides thousands upon thousands of jobs, and in the last century the automobile has revolutionized the world, and become an indispensible aspect of the global culture. In the past, investing in the automobile industry was not considered risky; however with the bankruptcy of GM, investors might begin thinking twice about investing in this particular industry.

Car manufacturers have adjusted their production and almost all vehicle-producing countries experienced a sharp drop in 2010 of output growth. The decline was particularly marked in Spain and Italy. United States, the decline of automobile consumption of durable goods and investment vehicle production businesses contributed 20 to 30% decline in production complete the second half of 2010. The current downturn in car sales appears more pronounced than the fundamentals such as revenue growth and real oil prices. Other factors could therefore have played a role. According to econometric estimates more restrictive credit conditions could explain over 80% of the collapse of auto sales occurred in late 2008 in the United States and

Canada. In fact, the high cost of credit conditions unable to obtain a car loan at affordable terms have prompted buyers to delay an acquisition they could have done in other circumstances. It is also possible that the increased longevity. Average motor vehicles of recent years has encouraged such behavior. Unfortunately, because the automobile industry is so large, much of the information about it focuses on the negative aspects. When talking about externalities, sources tend to focus on the negative ones instead of the positive ones. An externality is an impact on a party that was not directly involved in the transaction, also called a “spillover.”

According to one article, these negative externalities are as follows: local and global air pollution, contribution to oil dependency, traffic congestion, and traffic accidents, among other, less serious externalities. Because air pollution affects everyone, it could be said that every single transaction between the buyers and sellers of automobiles has a negative effect on multiple third parties. At least in the current social and economic climate, this negative externality has an impact on the economy because people are becoming more aware of the impact they are having on the environment. Aside from environmental reasons, people also want cars that can obtain more miles per gallon due to the rising gas prices.

The automobile is considered a private good, rather than a public good and it is nearly impossible for an automobile company to have any kind of monopoly: there are too many popular brands, unlike computer operating systems, for example, where Microsoft has a natural ...