The Auto Industry

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|The Auto Industry |
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The auto industry ranks among the most important industries in the United States. This is not only because of its present day impact, but also because of the infrastructure it has been a key part of since the early 20th century. The auto industry was a key part of the 2nd industrial revolution and helped to establish the United States as the front-runner in modern manufacturing. Without the auto industry in that period, who knows where the United States would be as opposed to the rest of the industrialized world (Wikipedia, 2009). Today, the auto industry’s importance is just as vital; which is evident by the great lengths lawmakers has extended government programs to assist it.

Shifts and Price Elasticity of Supply and Demand

Price elasticity and supply and demand affect the auto industry in a variety of ways. Just like the rest of the industrial sector, prices for raw materials such as (but not exclusive to) iron, aluminum, rubber and plastics are not positioned at a set rate. So as prices rise, the auto makers do not absorb the cost. They simply raise the price of the finished product; inherently turn the extra cost over to the consumer. That is expected because most industries first responsibility is to turn a respectable profit. However, the action raising prices usually has a negative effect; a testament to the elasticity of the industry. It lowers the demand for the finished product and in turn, lowers the total volume sold by the...