Mister

This article is about General Motors Co who has delayed for almost a decade in changing the switch used in their cars, which eventually lead to the deaths of at least 13 people. Initially, GM had failed to address this switch problem due to the additional costs. Replacing the switch would cost an extra 90 cents per unit as well as additional tooling costs of $400,000. Supply is the willingness and ability of producers to provide a good or service at a given price in a given time period. The increase in production costs (because it does not relate to the price of the product directly) would cause a decrease in supply, resulting in a shift of the supply curve of Holden cars to the left from S1 to S2. As seen in Figure 1, supply decreases from Q1 to Q3. This means that at every price, there would be a lower quantity of cars provided by GM. At the former market price, there would be a shortage. This is because consumer demand for Holden cars have not changed, and so the decrease in supply would make the quantity demanded greater than the quantity supplied. GM might then think of increasing the price of their cars. As the price rises, demand will drop, because less people will be willing and able to purchase Holden cars. The simultaneous expansion of supply and contraction of demand will result in a new equilibrium price (at e2), which is higher than the previous one (e1). Despite being able to set higher prices for their cars, GM had chosen not to change the switch because they might not get as much total revenue as they would with a lower market price but higher consumer demand (P1e1Q1O > P2e2Q2O). Price elasticity of demand (PED) is a measure of consumers’ responsiveness to a change in price of a good or service. It is calculated by dividing the percentage change in quantity demanded of a product by the percentage change of its price. In this case, price elasticity of demand could be used to explain why raising the price of Holden cars would lead to a