Question

Variables typically included in a multivariate demand function (other than the price and quantity of the item the demand function represents) are consumer tastes and preferences, the number of buyers, spendable (disposable) income, prices of substitute goods, prices of complementary goods, advertising expenditures, weather, and expectations. Recalling that the price of the item being considered is placed on the vertical axis, and the quantity on the horizontal axis, the other variables are termed demand shifters. Please answer the following questions about the affect changes in other variables might have on the demand for the item. These changes will either cause demand to increase (shift right) or decrease (shift left). Use either word as applicable, for the short answer.

1. Vehicle owners wishing to drive into central London must purchase passes to do so costing about $13.00 (as of 6-2011) per day. The policy is attempting to reduce traffic congestion and pollution. It has been in effect for several years. A long-term effect of the policy is to _______________ the demand for office space in Central London thus increasing building vacancies.

2.    The price of petrol in London (as of 6-2011) was about $12 - $13 per gallon. As a result, the demand          for bicycles is _________________.

3.    Vehicle license plates in England increase sharply in price the older is the age of the vehicle. As a result, the demand for new vehicles is _________________ and the demand for used vehicles is ______________. This policy encourages the purchase of ever more efficient vehicles.

4.   Monthly rates for single-line household plain old telephone service (POTS) keeps increasing. Cell phone rates increase too, but their service plans offer more options when the rate is increased. Many therefore are _____________ their demand for plain old telephone service.

5.   I have my own Italian espresso machine. Occasionally I opt for a commercial medium-sized Latte for $3.44 a drink. My favorite coffee store has, however, raised the price to $3.99 per drink. I am thus likely to ______________ my demand for their Lattes

Answer 1

Q1) Since commuting to the office is more costly now, there will be a decrease in demand for office space.

Q2) Since petrol and bicycle are substitute goods, a high price of petrol will increase the demand for bicycles.

Q3) Since the cost fo old cars is increasing the demand for used cars will decrease. SInce, used cars and new cars are substitutes, the demand for new cars will increase.

Q4) Since POTS and cell phones are substitute goods, increase in price of POTS decreases demand for POTS and increases demand for cell phones.

Q5) Since the price has increased, the demand for theor lattes will decrease.