Yes, there is a downturn in auto sector but who should do the fixing?

Instead of industry asking the government to address the income effect, the government should ask the industry to address the substitution effect

A report in this newspaper says the automotive industry is facing the worst downturn in sales in two decades. But a little bit of economics is enough to show that the headline is misleading. The economics involved is taught in the first year of any BA course. It’s called demand theory.

An important element of this is that demand can go up or down depending whether incomes go up or down. This is called the income effect. And this is what everyone, including me, has been harping on as the only reason for the drop in demand. This is the