INTRODUCTION

Part 1

Part 2

Part 3

At the turn of the 20th Century, automakers thought the best way to maximize profit was to build a car for the rich. But HenFordry Ford had a different vision. He wanted to produce a car that everyday people—like the workers in his factories—could afford. With lower prices, cars would be more affordable to the general public. He also figured that if he paid his factory workers a better wage, more of his workers would be able to afford the cars they helped make. Henry Ford would make a profit by selling MORE cars.

TASK

In the activities that follow, you will see how Henry Ford's efforts to improve productivity forever changed the market for automobiles. You will analyze the impact of his innovations, applying what you learned to current events that affect the supply and demand for automobiles today. You will also test you economic understanding of what you have learned throughout this three-part lesson.

PROCESS

 

Model T Prices and Production *

Price

Production

$950

19,173

850

9,450

780

35,451

690

68,228

600

151,693

550

180,279

490

185,278

* Nominal Prices


Use this chart to plot the information above.

In October 1908, the first Model T Fords were sold for $950. As Henry Ford found new ways to reduce production costs, he passed the savings on to consumers as lower prices. By 1912, the car was selling for $575. It was the first time that a new car had sold for less than the average wage of U.S. workers. The price of the Model T would continue to drop during its 19 years in production, at one point dipping as low as $280. With each price cut, more and more consumers could afford to buy the cars.

This reduction in price meant that the Ford Motor Company had smaller profit margins (on each Model T), but its revenue stayed the same. How was that possible? In 1909 the profit on a Classic Carcar was $220. By 1914, the margin had dropped to $99. But sales were exploding. While profit margins on individual cars were smaller, the added sales volume increased total profits. During this period, the company’s net income rose from $3 million to $25 million. Its U.S. market share rose from 9.4 percent in 1908 to a remarkable 48 percent in 1914.

The Changing Market for Automobiles

Henry Ford permanently changed the auto industry. To remain competitive, other automakers had to adopt his innovations in mass production.

Supply Graph
Graph came from another EconEdLink lesson:
Economics in the Headlines

Increased productivity made it possible for automakers to increase the number of automobiles they were willing and able to sell at different prices. The supply curve in the auto market shifted right.

Demand Graph
Graph came from another EconEdLink lesson:
Economics in the Headlines

Up to this point, the lesson had focused primarily on mass production, but mass consumption was just as important to Henry Ford. His $5 day forced other employers in the auto industry and other industries to follow his lead to attract and keep workers. As a result, wages for many U.S. workers increased.

The increase in wages increased consumer demand for automobiles. The demand curve shifted right as more consumers were willing and able to buy cars.

Fast forward to the automobile market today. Supply and demand for motor vehicles continues to shift. Read the following newspaper headlines and decide whether each event will have an impact on the market supply or demand for cars. If there is likely to be a change, specify whether it will be an increase or decrease.

CONCLUSION

By the time Henry Ford halted production of the Model T in 1927, more than 15 million cars had been sold, half the world's output of automobiles. His innovations in the auto industry completely transformed life in the 20th century. Manufacturing productivity soared as other industries adopted his approach to mass production. Wage increases allowed workers to buy goods that were formerly considered luxuries. Volume selling at low prices proved to be a profitable strategy.

  1.  If this is the case, why is Henry Ford such an important figure in our history books?
     
  2. How did workers benefit from the transition to mass production?

  3. How did consumers benefit from mass production?

  4. How did producers like Henry Ford benefit from mass production?

  5. Are there any costs, or negatives, that come with mass production?

ASSESSMENT ACTIVITY

Test your economic understanding of what you have learned about Henry Ford and the Model T.

EXTENSION ACTIVITY

  1. AutomobileGather news stories on events that will affect the market for automobiles. For each event, tell how supply or demand will be changed, and explain the cause of the change.
  2. Do more research on the history of the automobile and its manufacture. These articles from About.com provide a good starting point:
    a.Early Steam Powered and Electric Cars
    b. The First Gas-Powered Cars
    c. The Start of the Assembly Line

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