Turkish Auto Sales Down, Theory of Price and Demand Confirmed
So, let's review. Remember this idea from Economics 101?
A. The Law of Demand
The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will demand that good. In other words, the higher the price, the lower the quantity demanded. The amount of a good that buyers purchase at a higher price is less because as the price of a good goes up, so does the opportunity cost of buying that good. As a result, people will naturally avoid buying a product that will force them to forgo the consumption of something else they value more. The chart below shows that the curve is a downward slope.
And for fun, let's remember a conversation I had once with Neil Kinnock, leader of the Labour Party during Margaret Thatcher's time in power. I'll use him as a stand-in for "the entire stupid world."
NK: Sure. Whereas, when we used to go around saying that we could get unemployment down, and it would require generating X amount of expenditure in the economy, etc., etc., etc., we’d get absolutely bloody hammered by the classicals—
CB: You’d get hammered by who?
NK: --by, you know, the classical supporters of the Conservative philosophy. .... Anyway, you know, it depends on what you think a country should be run for, and how you think it should be run. The great thing about the kind of boiled-down Friedmanism that they had is that they didn’t think the country should be run. Or certainly, the economy. They felt that it should be left to the magic of the market. She said to me, in Prime Minister’s questions, you may have heard the phrase, “You can’t buck the market.” And this is an incantation, this is … a religious conviction, almost, which is bloody ridiculous! I mean, there’s no serious economist in the world who would offer that as a kind of a chant in an economic church--
Yes, yes, of course. The people who think there might be some very regular relationship between such things as price and demand are in the grip of a religious fervor. It's just a weird dogma, they have no special reason for believing this, right?
So, suppose you're the proud owner of an emerging economy, and suppose the automative sector plays a particularly large role in your burgeoning manufacturing sector. Suppose, in fact, that it's really the star of your economy, with some 17 domestic and foreign principal producers and 4,000 sub-industry companies directly employing at least 300,000 workers. Now let's suppose you decide to tax the hell out of auto consumption.
Automobile and light commercial vehicle sales in Turkey for January fell 34.2 percent compared to a year earlier, according to the Automotive Distributors Foundation (ODD).
The total number of automobiles and light commercial vehicles sold in January was 29,545, down from 44,892 in January 2011. The fall began in the third quarter of 2011. In the last quarter of 2011, the market for automobiles and light consumer vehicles dropped by 11.75 percent, reaching 34.2 percent by January 2012.
Now, in fairness, it's pretty obvious that this was the intended result; I don't think they just decided to do it on a lark. With the whole world screaming about the risk of overheating to the Turkish economy, well--that's one way to cool it, I guess. My judgment isn't a normative one; I'm not sure that it was a bad decision. I just point out that it was a decision with absolutely predictable results.