Many people have larger amounts of debt in america than...

Many people have larger amounts of debt in America than before, and people in the market have become hesitant to take out loans for new cars. All other things being equal, what would car dealerships do with their financing in this new market environment? They would decrease the supply of car loans and increase the equilibrium price (interest rate) to attract more car buyers. They would increase the supply of car loans and increase the equilibrium price (interest rate) to remain competitive. Dealership financing would decrease the supply of car loans and decrease the equilibrium price (interest rate) to make their car loans more attractive for people.

Transcript

00:01 So here we're talking about the market for car loan.

00:03 So let's draw that market before we do anything else, right? a market is characterized by a quantity, and in this case, a very specific price, right, the interest rate, r being the interest rate on loans.

00:15 A market has a demand and a supply, and we're told that there's a shock, right? and that shock to me says that hesitant to buy cars.

00:30 Is that shock affecting the demand curve or is it affecting the supply curve, right? the demand curve is buyers and the supply curve is firms who provide the loan.

00:42 So to me, when you say that people are becoming hesitant to take out loans for new cars, at any interest rate, at this interest rate, at this interest rate, at this interest rate, at this interest rate, people are going to want fewer a smaller quantity of loans.

00:57 So i would model this as shift demand to the left, right? so compared to the original equilibrium, we have a situation where the interest rate is going down and the quantity is going down.

01:18 We are moving along the supply curve, right? moving between these equilibrium.

01:24 So what's happening to suppliers? suppliers are charging a lower interest rate, right? you see that the price is falling.

01:34 And they are extending fewer loans, right? that is the third option, right? it says we're given three options.

01:44 I'll say that c.

01:46 The first one says that they will increase the equilibrium price.

01:49 Well, offering a higher price doesn't attract buyers...

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