Article based on:
Cars are important transportation equipment to the citizen in Malaysia especially to those people who live in the city center. Everyday, we can see long line of car sticking bumper to bumper during the peak hours. According to statistic, every family who live in the city will own at least 2 cars. In fact, some of the families that have a lot of family member will own up to 4 to 5 cars. So, cars have played a very important role to the citizen. If a person’s car broke down, will result, as the person cannot travel around from places to places. In this recent time, the trend has change from fuel consumption to hybrid cars. Hybrids cars are cars that run with electric. Therefore, there is reason that causes the demand of hybrid car to increase.
Demand is the wants that people want to buy, or people who can afford and plan to buy. So, in order for people to increase in demand in hybrid, the firms need to consider of the wants of the car, could people afford the car or are the people planning to buy a car. Petrol is the most important resource to make a car move. Therefore, this shows that petrol is the complement good with car. The demand and supply curve below will show the demand change from fuel consumption cars to hybrid cars effected by the petrol price.
Figure 1.1 insulates the quantity of fuel consumption car demanded on the x-axis and the y-axis shows the price of fuel consumption cars. Besides that, the red line show the supply curve of the fuel car and the blue and yellow line show the demand curve of the fuel car. Initially, there is equilibrium in the car’s market at the quantity of Q1 and the price of P1. When fuel price increase and it will affect the market of the cars. As we all know that the petrol is the complement goods for car, without petrol the car cannot be function. As the price of the petrol increases, the people will find a substitute to replace the fuel car. So, this action has causes the demand of the fuel car drops and made the demand curve shift to the left. So, the shift of the demand curve has form another equilibrium point which that the quantity reduce from Q1 to Q2 and reduce the price from P1 to P2.
Due to the increase in price, people will find a perfect substitute to replace the fuel consumption car. The increase in price of fuel will lead to an increase in price of traveling cost. Therefore, people will find the best way to reduce the cost by change their trend to hybrid cars. Thus, the changes of taste in car have effect the market of hybrid car. The demand and supply curve below will show how the price of petrol effect the change of hybrid car.
Figure 1.2 show that the demand and supply curve of the hybrid car. The x-axis shows the quantity of the hybrid cars and the y-axis insulates the price of the hybrid cars. In addition, the red line shows the supply curve of the hybrid car and the blue and yellow line show the demand of the hybrid car. Initially, when there is not change in price of petrol the, the equilibrium point of quantity is at Q1 and the price is at P1. If the price of the petrol increases, this will lead to people will buy more hybrid car instated of fuel consumption car to reduce their expenses on traveling. As a result, this led to and increases hybrid car and cause the demand curve shift to the right. This action has causes an new equilibrium form at the quantity increase from Q1 to Q2 and the price increase from P1 to P2.
The selling price of the hybrid car in Malaysia is slightly higher than the fuel consumption car due the capital investment pour into the hybrid technology. Beside that, the new technology that newly introduced have very little competitor and mainly dominate by Honda in Malaysia. So, the company has control over the price of the hybrid car and causes a price inelastic. But people still is willing to buy the car, because it saves up at least 30 to 40 percent of fuel consumption. The selling price for hybrid car is expensive, but percentages that save up on fuel are worth more than the fuel consumption car ever thought it look cheaper in selling price. As a result, the fuel saving on hybrid car make an increase in demand for hybrid car. In addition, the subsidy are given by the government to hybrid car have increase in demand. The government eliminates the import duty and exercise duty on hybrid car with engine size less than 2.0 litters. The subsidy has made the price of the hybrid car even lower than before that more people can afford on it. This makes the demand to increase as well.
The hybrid car is mainly dominant by Honda and it creates a market structure called monopoly in the short run. Because this new technology just establish, this result very little firm adapt into this technology causes very little competitor to compete with Honda Company. So this make the company to set there price high and sell to the consumer. In contrast in the long run, there will be more firms establish into this technology for example, Toyota, Proton and etc in coming time. So when these companies come out with their new hybrid car will cause a competition among firms and lead to an oligopoly market structure. When there is competition, the firms will sell their product at a lower price in order to fight with other firms to survive in the market. Eventually, the price of hybrid car will fall in the long run time frame. Furthermore, if the price of hybrid car drops more than the fuel consumption car, the fuel consumption car will slowly decrease from the market. This will happen because the hybrid car is perfect substitute to fuel consumption car and hybrid car bring more benefits towards the consumer.
In conclusion, the hybrid car will bring a revolution in our car industry, because it brings more benefit and cost saving toward the consumer. I hope that, these technology will be more establish all around the world so everyone can enjoy using it.