Wednesday, October 26, 2016

Regardless of high petrol price, the demand for cars in Malaysia is still very high. Explain three factors that could cause this situation.

There are a number of factors that could contribute to high demand for cars in Malaysia. 


First, the most likely explanation is that there are no good substitutes for cars.  When there are no good substitutes for a thing, the demand for that thing is likely to be high, regardless of its price or the price of its complementary goods (petrol).  If, in Malaysia, public transportation is poor, or if people often have to travel...

There are a number of factors that could contribute to high demand for cars in Malaysia. 


First, the most likely explanation is that there are no good substitutes for cars.  When there are no good substitutes for a thing, the demand for that thing is likely to be high, regardless of its price or the price of its complementary goods (petrol).  If, in Malaysia, public transportation is poor, or if people often have to travel long distances, cars would be necessary and demand for them would be high.


Second, it is possible that the demand for cars is high because of consumer tastes.  People often want a particular good simply because that is what they like.  A great example of this is how there can be a high demand for a certain type of clothing just because it is in style.  It may be that Malaysian consumers really like cars.  They might think that owning a car gives them status.  They might think that it gives them greater freedom.  Whatever the reason, there may be high demand for cars in Malaysia because of consumer tastes.


The most likely other factor that would cause demand for cars to be higher is consumer incomes.  It could be that consumer incomes in Malaysia are high or that they have been growing in recent years.  If this is the case, cars might be becoming more affordable to consumers in Malaysia.  As cars become more affordable, more people buy them.


These are three potential reasons why demand for cars is high in Malaysia.


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