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That would be against all economic theories I know. I'd demand is lower, profits use to go down too. I understand part of your reasoning, buying a car for the

• stormbrew 13y ago
  It really doesn't go against economic theories. Demand has no direct relationship with profit. Supply and demand affect price, which has an effect on profit. When demand goes down production slows and supply eventually reaches a new equilibrium with demand at a new price. Cars that are already constrained in supply could continue to do well while commodity cars would go unsold. There would be a short term downward pressure on price, but it wouldn't last forever. I'm not saying it wouldn't be a hard blow for the car industry at all. It would decimate it. But what would be left standing would be the most expensive cars and cars equipped to be rented, and the margins on those are much higher. Companies like BMW are more well equipped to take on that new market reality. Perhaps the part I was unclear about is that the "them" in my OP was high end car manufacturers like BMW.
  • simulate 13y ago
    > Demand has no direct relationship with profit. This is false. Profit = Revenue - Costs Revenue = Demand * Price Costs = Demand * Variable Costs + Fixed Costs Thus, Profit = Demand * Price - Demand * Variable Costs - Fixed Costs As long as variable costs < price then profit goes down when demand goes down.
    • stormbrew 13y ago
      I don't disagree with this post, except on semantics.