In recent years, the number of car producers in China has increased rapidly. In fact, China now has more car brands than the United States. In addition, car sales have climbed every year and automakers have increased their output at even faster rates, causing fierce competition and a decline in prices. At the same time, Chinese consumers' incomes have risen Assume that cars are a normal good.
a. Draw a diagram of the supply and demand curves for cars in China. Show the starting equilibrium price and quantity.
b. On the same diagram (from a) show the changes in demand and supply in response to the changes presented above. Show the new equilibrium price and quantity.
c. Explain what has happened on the Chinese car market as a result of these changes
d. Some economists believe that in the future the car prices will grow i. If this price increase will be driven by the shift in demand, what factors will be contributing to that and how?