The Economics Principles Task (EPT) Assessment Help

Part 2 – 10 Marks

The Market for Cars in the US

There has been a strong increase in global demand for semiconductors from around Q3 2020 to Q3 2021, which has led to inventory shortages for new and used cars in particular.

Your tasks for Part 2 are as follows:

Read the following key articles:

1. Hopkins, John L (2021) “Yes, the global microchip shortage is COVID’s fault. No, it won’t end any time soon”, The Conversation, June 2nd, available: https://theconversation.com/yes-the-global-microchip-shortage-is-covids-fault-no-it-wont-end-any-time-soon-161903
2. Undercoffler, David (2021) “Five Ways Car Shoppers Are Responding To Record Low Inventory”, Forbes, September 8th, available:  https://www.forbes.com/sites/davidundercoffler/2021/09/08/five-ways-car-shoppers-are-responding-to-record-low-inventory/
3. O’Brien, Sarah (2021) “Buying a new car is a challenge amid a global chip shortage and limited inventory”, CNBC, September 3rd, available: https://www.cnbc.com/2021/09/03/discounts-on-new-cars-are-hard-to-come-by-how-to-find-a-good-deal.html

Use the demand and supply (D&S) model to demonstrate the change in the market conditions from Q3 2020 to Q3 2021 for the new car market and used car market in the US.

• Use two separate D&S diagrams corresponding to the two markets, and carefully label the curves and clearly indicate all equilibrium prices and quantities.
  • For your price points, use values based on actual data where possible.
  • Use hypothetical values (rough guesses) relying on intuition for quantities.

What do you think the price elasticity of demand (PED) might look like for new or used cars in Q3 2021 compared to Q2 2020? In your answer, discuss a key determinant of PED.

                  [400 or so words is the suggested amount for Part 2] 

     [4 marks for diagrams + 6 marks for quality of explanation = 10 marks]