Ferrari Case Study: Ferrari

722 Words3 Pages
When one is able to apply concepts of choice, changes in demand, supply, markets, substitutes, and effects of population changes, consumers will be able to make more profitable decisions. He or she will be able to make more economical choices so that one will not regret one’s choice in the future. Ferrari, a luxury car manufacturer, owned by Fiat is applying concepts of choice, changes in demand, supply, substitutes, and effect of population changes in order to produce not only more profit but also maintain the special uniqueness or scarcity of its cars. Fiat is able to take leverage on the situation by limiting its supply to 7,000 cars per year when the market is increasing due to increased wealth in many emerging markets. As “China and other emerging market” populations are increasing, it causes a shift in demand for Ferrari cars from D to D1 because population is a non-price determinant of demand which can affect the demand curve. However, Fiat is maintaining a perfectly inelastic supply of S meaning the supply is not affected by anything. Thus, the quantity supplied is maintained at 7,000 cars at point Qe whereas the price of Ferrari models are increasing from Pe to Pe1 as the shift in demand causes a change in equilibrium from Pe to Pe1. Similar to Ferrari’s claim, “That’s good business for us”, Ferrai is gaining more profit per unit of product, average revenue and…show more content…
In addition, the demand of Ferrari cars are inelastic because even though the price of Ferrari models increased significantly from Pe to Pe1, the quantity demand hardly changed. This effect is caused by the increase in population of emerging markets demanding Ferrai cars which covers up the demand loss in other

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