Microeconomic Analysis on Electric Vehicles

Executive Summary

Economics is a branch of social science which tends to follow the behaviour of an organizations, household and individuals. As the resources are scare, it is essential to allocate these scare resources in a way that optimal level can be achieved. It is the task of the producer or number of producers to achieve the best outcomes taking in account all the possibilities and limitations. Moreover, micro-economic focuses on the production, consumption and distribution of commodities or services. Consumers demand good in accordance to their preference considering the price as well. The paper will unfold various economic theories in respect to the market of electric vehicle, the factors that will affect the demand of the commodity and its supply in short and long run and the role of government in regards to the article “Electric Car Plans Zoom Ahead” by Peter Hannam.

Executive Summaryi

Introduction1

Market Analysis2

Demand of Electric Vehicle3

The Point of Equilibrium4

Short and Long Run6

Role of Government9

Conclusion9

End Notes10

Microeconomic Analysis on Electric Vehicles

Introduction

In the earlier times, electric power motor cars were in used in United States but as the time passed Henry Ford introduced combustion engine cars which are being consumed ever since. Many researches have been conducted and rapid technological advancement has led in overcoming the identified limitations of electric cars that were in normal use of people century ago. Furthermore, high diesel and petrol prices are lowering the barriers for electric cars to enter the market. However, it is important to cater the demand with efficiency in order to create a share in the market.

There are many economical aspects that must be considered when bringing a commodity in the market. An analysis of the existing industry, consumer demand, resource allocation and short or long term performance will facilitate the producers in making the right decision. Though there are many large players that are producing cars, such as General Motors, Ford Motors, Honda and many more, Electric cars can give competition to these players once it enters the market. The paper will explore various economic theories in order to analyse the market of Electric Vehicle (EV) highlighting the nature of the product, shift in demand and supply curve, market equilibrium in short and long term and the role of government intervention in the market.

Market Analysis

Micro economic theories suggest that market structure can be divided into two broad structures that is perfect competition and imperfect competition. Perfect competition is more of a hypothetical assumption where quantity demanded is equal to quantity supplied. This theory has some limitations such as all producers sell identical commodity, all are price takers and have low market shares and there are no barriers to entry or exit. However, imperfect competition depicts competitive markets. These markets include oligopoly, monopolistic competition and monopoly. The market for cars can be categorized as monopolistic competition, where producers sell differentiated goods in terms of quality or brand. The products may not be perfect substitute but are close substitutes. Producers will have a degree of control over the prices but ...