Will Consumers Choose Alternatives to Owning a Car?

1. Will Consumers Choose Alternatives to Owning a Car? Ripped from the Headlines Presentation Intermediate Microeconomics, Fall 2014 Zhoudan (Zoey) Xie First Year, MPP September 16, 2014

2. Article Summary New car sales may not grow as rapidly as before as nations and driving-age populations gain wealth. Causes: • Alternative options (car sharing, public transportation, walking and bicycling, etc.) • Urban congestion – Traffic • Quotas (bans on cars of a certain vintage or emissions spec) • Availability of WiFi and Internet Evidence: • Declines of driver licensing in the US (from research by UMTRI)

3. Switch of Consumers’ Preference “By now, most of us have heard about the polls showing that people under 24 would rather give up their car than their smartphone.” Quantity of Smartphones Quantity of Smartphones Alternative options Traffic WiFi & Internet Quotas Etc. Quantity of Cars Quantity of Cars Flat Indifference Curve: Consumers would require a large increase in cars to give up a unit of smartphones. Steep Indifference Curve: Consumers are willing to give up a large quantity of smartphones to get another unit of cars.

4. Effects of the Switch After Switch: • Consumers prefer some “composite good” than cars • Indifference curve becomes flat • When income rises, quantity of new cars at consumers’ optimal choice rises a little • New car sales grows slowly Growth of New Car Sales After Growth of New Car Sales Before Before Switch: • Consumers prefer cars than some “composite good” • Indifference curve is relatively steep • When income rises, quantity of new cars at consumers’ optimal choice rises a lot • New car sales grows rapidly