Question

Show in four seperate diagrams, and explain in words in each case, how Sandy's demand curve for autos (A) is likely to change if (i) her income increases, (ii) public transportation becomes less expensive, (iii) price of tires falls substantially, and (iv) expected price for A in the "next period" becomes lower. Label the axes appropriately.

Answer 1

A.The demand for public transport will fall with rise in income because the consumer can afford personal transport.Demand curve will shift to the right.

B.The demand for autos will fall because autos will be relatively more expensive to public transport.

C.Owning an auto will become cheaper when price of tires fall because tires and autos are complements.Demand curve will shift to the right.

D.The demand in the current period will fall because consumer will prefer to consume in the next period.