Question

Which of the following events would increase the demand for apartments in LA (i.e. shift the...

Which of the following events would increase the demand for apartments in LA (i.e. shift the demand curve to the right)?

a decrease in consumer income in LA, given that apartments are a normal good

an expectation that apartment prices in LA will go down in the future

a rise in the price of condos in LA, a substitute for apartments

the entry of a new apartment complex in LA

a decrease in the price of the lumber used to construct new apartments
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Answer #1

Sol :

Option (c) is correct

[ A rise in the price of the condos in LA, a substitute for apartments ]

Because of the following reason :

  • Condos is the substitute good of the apartments . Substitute goods are positively related to each other.
  • A rise in prices of one goods will likely to increase the demand for the other substitute goods.
  • So, when price of condos increases , demand for the apartments in LA increases.
  • Increases in demand will shift the demand curve to the right.

Normal good has positive income effect. So , when income decreases , demand curve also shifts to the left.

An expectation that future demand for apartment will impact the supply not the demand.

The entry of new apartment complex in LA , decrease in prices of lumber will also impact the supply not the demand.

So, only option (c) is correct.

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