Answer to Question #289426 in Economics for Mou

Question

What effect will each of the following have on the demand for small automobiles

such as the Mini-Cooper and Smart car? Answer with graph.

i. Small automobiles become more fashionable.

ii. The price of large automobiles rises (with the price of small autos remaining

the same).

iii. Income declines and small autos are an inferior good.

iv. Consumers anticipate that the price of small autos will greatly come down in

the near future.

v. The price of gasoline substantially drops.

Answer 1

i. Small automobiles become more fashionable - demand for them will increase.

ii. The price of large automobiles rises (with the price of small autos remaining the same) - demand will increase, as these goods are substitutes.

iii. Income declines and small autos are an inferior good - demand will increase.

iv. Consumers anticipate that the price of small autos will greatly come down in the near future - demand will decrease.

v. The price of gasoline substantially drops - demand will increase, as cars and gasoline are complements.