The paper "Australian Car Industry" is an outstanding example of a micro and macroeconomic assignment. Subsidies in the Australian car industry normally take the form of payments by the Australian federal government to car producers or manufacturers. The payments are done in cash directly to the manufactures. They can be considered as negative taxes and the effect of a subsidy is to reduce the costs of supplying a given commodity (Dodgson, Hughes, Foster & Metcalfe, 2011). In terms of demand and supply analysis, this signifies that the supply curve will shift downwards by the amount of the subsidy whereby more is supplied at any given market price.
This will lead to a fall in price and an increase in quantity demanded. For instance, if the prices of cars in Australia fall below the expected market price the quantity demanded increases (Arnold, 2010). A new equilibrium will be established at price P1. This can be illustrated in the figure below. The equilibrium price of cars in Australia is represented by price Pe and when there is a subsidy from the government the price of the car will drop from Pe to a new price p1 and subsequently leading to an increase in quantity demanded from Qe to Q1 (Arnold, 2010). Australian PM Julia Gillard on behalf of the federal government recently said that car manufacturing needs to be part of the Australian future because it does have, at its forefront, design and innovation skills which are very important not only to car manufacturing but to the rest of manufacturing.
This is very true as many jobs in the manufacturing industry will not be lost and more and more people will continue to work in the industry (Sexton, 2010). Comparative advantage refers to a situation whereby an individual or an organization has the ability to produce a good or services at a lower cost compared to the others in the market.
Comparative advantage enables an organization to sell its goods or services at a lower price than the competitors, therefore, realizing more sales. Australia has no comparative advantage in manufacturing cars; this is clearly evident in how the industry is performing. Although the car industry in Australia is producing cars for the domestic market consumers are not buying those cars due to the car's high prices compared to cheaper cars imported from Japan.
The cost of producing a unit of the car in Australia is much more compared to the cost of producing the same car in Japan.
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