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After reading “Chrysler Enters the Race to Introduce Electric Models” by, Bill Vlasic Chrysler is planning on producing an electric car to sell in 2010. Chrysler has three electric models now but is planning on producing a full line of cars in the future. This is an attempt by the auto maker to compete in the market for electric automobiles. Compared to G. M. Chrysler is adopting its existing models to electricity rather than building a new platform, putting their money into technology rather than the platform of the car. While Chrysler is committed to electric vehicles, Mr. Nardelli said the project would benefit directly from a proposed $25 billion federal loan program for the United States auto industry. ” Chrysler is attempting to compete in the new demand for electric cars due to the rise in fuel prices, ultimately decreasing fuel prices by making the demand more elastic. Now that oil prices have sky rocketed the American people are demanding more fuel efficient cars and demanding less cars that are on the market today.
Therefore the demand for cars on the market today is inelastic. As gas prices increase demand for cars decrease and revenues decrease. Chrysler is creating a supply to meet the new demand for electric cars to increase their revenue. Right now the supply for electric cars is very inelastic because there are not many on the market, making them expensive. As Chrysler and other auto makers come out with electric cars the supply will become more elastic and cars will become more affordable.
This is because of the law of supply, as the price of a product increases the quantity supplied will increase. Until electric cars become more affordable people will continue to pay high prices at the gas pumps. Right now demand for gas in America is fairly inelastic. Once electric cars become affordable and more and more people start driving them the demand for gas will decrease. This could make the demand for gas more elastic. When the demand for a good is elastic the suppliers try to sell more at a lower cost to make higher revenue.
When the demand is inelastic the suppliers can sell less of a good at a higher cost to increase their revenue. Until demand for gas becomes elastic gas prices can only get higher. This is why OPEC plans to decrease supply, only to increase prices and make more revenue. The Electric car market affects anyone who drives a car. Once the demand for gas becomes elastic due to a greater number of people driving electric cars, then gas prices will drop.
The people who drive electric cars will save money on gas and the people who can’t afford an electric car will also save money on gas compared to now where the demand is inelastic. The government is doing the right thing by offering a $25 million federal loan program to make cars more fuel efficient (electric cars). It is obvious to see that electric cars can cause a decrease in fuel prices. Article can be found at: http://www. nytimes. com/2008/09/24/business/24auto. html? scp=1=Chrysler%20enters%20the%20race%20to%20introduce%20electric%20models=cse