Since the invention of cars, these useful tools of transportation have evolved into indicators of wealth and social

status of individuals, and the number of private cars represents the economic well being of a country. In Vietnam, for instance, where almost everyone owns a motorbike due to income constraints, a car is deemed as a luxury good. As the country develops, a rise in number of affluent citizens causes an increase in demand for cars. In such cases, demand for cars is then defined as the willingness and ability of consumers to purchase cars within a specific time period at various prices, with the assumption of ceteris paribus and that cars are considered normal goods. Therefore, this essay seeks to explain how income level of consumers, government policies like Certificate of Entitlement (COE) and prices of substitutes like public transport affects the demand for cars. The income level of consumers is one factor that influences the demand for cars. In general, the higher is the income levels, the greater is the demand for cars, and this is because consumers gain higher purchasing power, that is they will have greater abilities to buy different goods and services, including luxurious ones like cars. There will be a greater quantity demanded for cars when more consumers are willing and able to buy cars in a given period of time at various prices, ceteris paribus. For instance, in Singapore, there was an increase in total sales of cars of 6295 units between 2004 and 2006 due to strong economic performance during that time. This is represented by the rightward shift of the demand curve, Figure A, from D1 to D2 at the same price of cars of P1, ceteris paribus. However, the extent in which the demand curve will shift is dependent on the income elasticity of the demand for cars. In Singapore, for instance, where car is more of a necessity than luxury, demand for cars is income-inelastic, that is the increase in income of Singaporeans will result in a less-than-proportionate increase in demand for cars, showing that demand for cars is not influenced greatly by the increase in income of Singaporeans. This is represented by the rightward shift of the demand curve of a smaller extent, Figure A, from D1 to D3 at the same price of cars of P1, ceteris paribus. One other factor that impacts the demand for cars is the price of substitutes such as public transport. In Singapore, for example, the flag-down rate of ComfortDelGro taxis increased between 20 cents and 70 cents, depending on the model of the taxi, back in late 2011 and this resulted in a fall in the number of users of taxis, ceteris paribus. Since public transport and private cars are substitutes, which are goods that feed similar desires and wants but at a lower price, as the quantity demanded for taxis decreases, quantity demanded for cars increases. This is represented by the rightward shift of the demand curve, Figure A, from D1 to D2 at the same price of cars of P1, ceteris paribus. However, this is not entirely true as in the context of Singapore, public transport like taxi is still relatively cheaper than owning and maintaining a private car. Thus, in this case, the rightward shift of the demand curve, Figure A, is of a smaller extent from D1 to D3 at the same price of cars of P1, ceteris paribus.

Another factor affecting the demand for cars are government policies such as COE unique to Singapore. COE is a quota license received from a successful winning bid in a sealed bid uniform price auction which grants the legal right of the holder to register, own and use a vehicle in Singapore for a period of 10 years. In recent years, there has been a spike in the price of COE such that in January 2012, prices of COE for cars up to 1600cc shot up over $10000. As a result, the cost of owning a car in Singapore increases, resulting in fall in quantity demanded for cars. There will be a smaller quantity demanded for cars when fewer consumers are willing and able to buy cars in a given period of time at various prices, ceteris paribus. This is represented by a leftward shift in the demand curve, Figure B, from D1 to D2 at the same price of cars of P1, ceteris paribus. On the other hand, the extent in which the demand curve will shift is dependent on the price elasticity of the quantity demanded for cars. In Singapore, for instance, where car is more of a necessity than luxury, demand for cars is price-inelastic, that is the increase in price of cars will result in a less-than-proportionate increase in quantity demanded for cars. Some Singaporeans are still willing to pay high prices, almost as high as $100000, to obtain only the COE. Thus this shows that demand for cars is not greatly influenced by the increase in total cost of cars. This is represented by the leftward shift of the demand curve of a smaller extent, Figure B, from D1 to D3 at the same price of cars of P1, ceteris paribus.

In conclusion, while income level of consumers, government policies like Certificate of Entitlement (COE) and prices of substitutes like public transport affects the demand for cars, it is the government policies that are the most significant factor influencing demand for cars in the Singaporean context. In the long run, even though consumers income may increase, or prices of public transport continue to rise,