UK Cars Market, without Demand

First of all, we must define some basic economic words that would make easier
to understanding the articles commentary. The first one and the most
important is microeconomics. Microeconomics is define as the branch
of economics that studies how the individual parts of the economy, the
household and the firms, make decisions to allocate limited resources, typically
in markets where goods or services are being bought and sold. 1 The article
must be about microeconomics, and define it would help understand what is
going on. Other one is the demand. Demand is the desire to own anything and
the ability to pay for it and willingness to pay. The term demand signifies the
ability or the willingness to buy a particular commodity at a given point of
time.2 The demand has a law, that in most cases it is accomplish, it also have
exceptions goods, but they are because they are out of the context. The law of
demand establish: When the price rise, quantity demanded would decrease.
And the last one is supply, it is the amount of some product producers are
willing and able to sell at a given price all other factors being held constant. 3
Now entering in the commentary, the article, show us a case in which the cars
demand in United Kingdom is low for three consecutive months starting from
August (the article talk about September). It says that the biggest decrease
was in August, with a 17.5% of down in the sales compare with the 2009 and
this is follow with a down of the 8.9% in September. It also said that according
to the SMMT,4 VAT5 will rise in January of the next year, so the UK cars market
hopes that in November and December the demand of the cars rise before the
price increase.

1 http://en.wikipedia.org/wiki/Microeconomics
2 http://en.wikipedia.org/wiki/Demand_(economics)
3 http://en.wikipedia.org/wiki/Supply_(economics)
4 Society of Motor Manufacturers and Traders (SMMT)
5 A value added tax (VAT) is a form of consumption tax. It is a tax on the estimated market value
added to a product or material at each stage of its manufacture or distribution, ultimately passed
on to the consumer. (http://en.wikipedia.org/wiki/Value_added_tax)

In the Graph 1, Cars Market on UK, the behavior that the article is
describing, the price maintains equal and the demand get low. This is a
typically demand and supply graphic in which is visible a shift on the demand
curve. It is a negative shift, both, the price and the quantity are decreasing,
and it dont have the new equilibrium point because in the article, they doesnt
mention that the price would increase, so for the moment this would be the
graphic.
The Graph 2, Before VATs increase, SMMT prediction, is the graphic for the
sales before January. It has also a shift on the demand curve as the first one the
only difference is that this one has a positive shift. Also, this one dont have a
new equilibrium point because the prices would stay equal until the new year.
Graph 1
Graph 2

We can say that if the sales increase in November and

December of this year, this two graphics would neutralize
and get on the equilibrium point again until the VATs rise.
Finally the Graph 3, After VATs increase (Cars Market-UK) it is show the
effect of the price rise in the sales. The demand as says its law, will decrease,
getting on a new equilibrium point. It is a negative shift of the supply curve.

Graph 3

Finally we can conclude that if UK wants to achieve the equilibrium point until
the price increases and equilibrates by his own, the country most do something
with the supply, if the SMMT theory of the sales of cars before the new year,
doesnt happen and the demand in this two would continue decreasing.

Chosen article:
6 October 2010 Last updated at 09:01 GMT

UK car sales fall for third month

UK car sales fell for the third consecutive month in September,
although the rate of decline was less severe than in August.
Sales last month were down 8.9% from September 2009, said the Society of
Motor Manufacturers and Traders (SMMT). This follows August's 17.5% fall.
Despite the latest drop in sales, the SMMT said sales for 2010 as a whole
should still be higher than 2009.
It said January's rise in VAT could boost sales in November and December.

'Slow improvement'
The SMMT said new car sales for the whole of 2010 should reach two million,
slightly above the total reached in 2009.
It added that sales in September 2009 had been aided by the government's car
scrappage incentive scheme, which ran from March 2009 to March of this year.
Stripping out the boost to sales that came from the scrappage scheme, the
SMMT said sales last month had been 16.3% higher than in September 2009.
SMMT chief executive Paul Everitt told the BBC that the UK car market was
making "slow but steady improvement".
He added: "Clearly it is a tough operating environment, and there is concern
about public expenditure, and inevitably business and consumer confidence is
not as high as we would like it to be."
Looking ahead, Mr Everitt said he expected the first half of next year to be
"quite challenging", but the last six months of 2011 to be "reasonably good".

The SMMT said it wanted the forthcoming government spending cuts to be

balanced by economic growth measures to boost both business and consumer
confidence.

URL: http://www.bbc.co.uk/news/business-11482295

Economics First Commentary (Microeconomics)

Student: Santiago A. Ramrez C.

Teacher: Juan Pablo Navarro

Words: 726

CIEDI
Bogot D.C.
October 14, 2010