Equilibrium Price and Quantity
The earthquake in Japan has affected the supply chain in the world including those of cars. As a result, there would be fewer supplies until Japan recovers from the earthquake. (Miyoung and Jim)
Figures 1 and 2 show the demand and supply curves of Japanese cars would have been affected by the earthquake. Figure 1 shows the demand curve of Japanese car demand. It is the typical demand for Japanese cars.
Figure 2 shows the shift of the supply costs of Japanese car. The situation is not a simple case of low inventory. So, it is not just a question of movement along the supply curve. It is a shift in the whole supply costing scheme. The impact of the earthquake is that the whole existing inventory has been destroyed. Japanese car manufacturers are practically starting from scratch with a higher starting cost. So supply output and total costs would be higher than before the earthquake. It is a different production process than before the earthquake.
Figure 1. Demand and supply curves and equilibrium price and quantity of Japanese cars before the earthquake. P1 is the equilibrium price and Q2 is the equilibrium quantity before the earthquake.
Figure 1. Demand and supply curves and equilibrium price and quantity of Japanese cars after the earthquake. As a result of the earthquake, the supply curve is shifted to the left bringing a higher cost for every unit of supply. Assuming no shift on the demand curve, the equilibrium price (P2) has moved upwards and the equilibrium quantity has gone down (Q2). The old equilibrium price (P1) and quantity (Q1) are shown for comparison.
The marginal cost is the estimated value of every additional unit produced. The higher the volume of production, the lower the marginal cost. (Investopedia, marginal cost). Of course, this is provided that the fixed and other variable costs remain constant.
In the case of Japanese car production, a whole batch of already finished cars were destroyed by the tsunami (Miyoung and Clare). This means that the starting point of the total cost of production has gone up but there is no inventory. So, the unit costs and marginal costs would be computed from the unit produced after all the inventory has been destroyed. So, the marginal cost of Japanese cars would have gone up.
Consumer and Producer Surplus
Consumer surplus is the value that a consumer is willing to pay higher than the market value for a certain product (Investopedia, consumer surplus). It is hard to say if there was really any consumer surplus for Japanese cars after the earthquake. Given the intense competition in the industry, it is unlikely that there was any consumer surplus. Demand for cars seem to be price elastic. So, consumers really would not pay more for a car when there are many substitutes available.
Likewise, producer surplus is the difference between the minimum amount a producer is willing to accept for a product and the amount he actually receives for it; the higher the amount he receives over the minimum, the higher the surplus (Investopedia, producer surplus). It is highly unlikely that Japanese car producers would enjoy any producer surplus. They may actually suffer from negative surplus. The unit costs of the manufacturing cars after the earthquake would have gone up. Given the competitive environment, the prices of the cars cannot be increased without any impact on demand. As a result, producers would be receiving less surplus than they would have before the earthquake.
Economic efficiency is accomplished when there is little or no waste in the production, distribution, consumption or whatever process involving goods. The tsunami destroyed a whole lot of brand new cars in inventory (Mu). There has been so much waste. Therefore, there was no efficiency at all. However, this observation may be valid only at the point after the earthquake. The manufacture of Japanese cars costs may undergo shifts and changes especially with regard to costs. After all, the old manufacturing facilities and existing inventory have been destroyed. This would mean a total change in the costings of the manufacture of Japanese cars. However, this should stabilize in time as the manufacturing gets going given the new facilities and processes.
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