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Equilibrium with Korean automobile supply and demand during a pandemic

For the past two years or so, pandemics have had a major impact on the supply and demand side of the Korean automobile industry. In 2020, when the COVID-19 pandemic began, the health crisis changed South Korea’s car demand patterns in an unorthodox way. COVID-19 crippled vehicle sales in almost all countries in 2020, but sales of light vehicles (LV) in South Korea grew rapidly, reaching 1.86 million units in 2020, 6 year-on-year. Recorded a% increase in the market.

The average sticker price for passenger cars in 2020 has also increased by 11.0% year-on-year, according to our estimates. In the graph of Economics 101 below, it was the result of shifting demand to the right (D19 19 To D20) In a new equilibrium E20..

However, in 2021, LV sales fell 8.8% year-on-year to 1.69 million units, below pre-pandemic levels. However, we estimate that the average sticker price for passenger cars in 2021 continued to rise (12.4%), an even larger year-over-year margin than in 2020, when strong demand pushed up equilibrium prices.

What is the cause of this combination of stagnant sales and rising inflation (or stagflation at the industry level) in 2021? To answer this question, we adopted a simple economic textbook analysis of supply and demand.

Given the large backlog of orders in 2021, South Korea’s automobile demand will continue to be strong in 2021, and the automobile demand curve will be D20 The level of the graph above. However, supply began to recede under the global tip crisis and tensions of parts shortages caused by lockdowns in some Asian countries such as China, India and Malaysia. Coupled with the global shipping crisis, the shortage of these automotive inputs has led to a global procurement crisis. As a result, the lack of critical production resources would not only push costs up, but also shift the supply curve to the left ().S20 To Stwenty one), It also affects the supply characteristics and reduces the elasticity of the supply curve.In our graph, the supply curve has shifted to Stwenty one from S20Pass S’twenty one Due to the global procurement crisis. So, if strong demand continues,’Less supply and less elastic supply ” South Korea’s 2021 LV market Etwenty one In our figure.

The bigger problem is that the current stagnation shock in the automotive industry due to the global procurement crisis is truly global. Faced with Crisis In the face of crisis, most global automakers are unable to adjust production to meet greater demand and find alternatives to scarce resources such as semiconductor chips. It was also not possible to prevent it from affecting production over the long term. While supply elasticity is declining, most major car markets combine high car prices with sluggish car sales.

According to classical microeconomic theory, supply is more elastic in the long term than in the short term. However, at the time of drafting this report, the global automotive supply chain, despite more than a year since its inception, was due to a shortage of chips, severe disease control in China, and the outbreak of war in Ukraine. I’m still close and stressed. Of the global procurement crisis. As a result, supply shortages and inelastic supply curves are likely to continue to face for the foreseeable future, and equilibrium will continue to occur where strong demand meets the less elastic supply curve than ever before. In the automotive market, stagflation has become a global norm, as time did not play an important role in determining price elasticity of supply, as classical microeconomic theory suggests.

Supply is more important than ever. Equilibrium with Korean automobile supply and demand during a pandemic

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