Question

2-Consider the market for minivans. For each of the events listed here, identity which of the determinants of demand or supply are affected. Also indicate whether demand or supply increases or decreases. Then draw a diagram to show the effect on the price and quantity of minivans. a. People decide to have more children. b. A strike by steelworkers raises steel prices. c. Engineers develop new automated machinery for the production of minivans. d. The price of sports utility vehicles rises. e. A stock market crash lowers people's wealth 3-Suppose the price elasticity of demand for heating oil is 0.2 in the short run and 0.7 in the long run. a. If the price of heating oil rises from $1.80 to $2.20 per gallon, what happens to the quantity of heating oil demanded in the short run? In the long run? (Use the midpoint method in your calculations.) b. Why might this elasticity depend on the time horizon? 4. A price change causes the quantity demanded of a good to decrease by 30 percent, while the total revenue of that good increases by 15 percent. Is the demand curve elastic or inelastic? Explain.

Answer 1

D (a) People decide to have more children. Determinant of Demand affected : Taste and Preferrence of consumer When people decide to have more kids, their demand for mini-vans would ruse. The demand Curve would shift from dd to dd Rightwards). The new equilibrium would be at E oss at higher price level P* 4 Quantity Q. Price 17 dd' dd Q. Q* Quantity (6) A strike by steel workers raises sted Price: since steel is one of the factors of production at the mini-van, so a rise in resource prices will cause a decrease in supply and cause a leftward shift in the supply curve to ss'. This would cause Price of mini-vans to rise from Po to pt and the quantity to decline from Qo to Qr at the new equilibrium E

-SSA C) Engineers develop new automated machinery tez the production of minivans is a technological improvement, which means more efficient production & lower costs so an increase an supply would result with ss moving to from as Erightwards), causing a fall in price of rise in quantity or Qo Q* a

(d) The price of sports utility vehicles rise Since, SUV is a substitute good (le can be used in place of each other), a dute in its price would effect the demand for mini-vans, as people shift from SUVs to mini-vans, this would increase the demand, shifting the demand curve from old to dd', raising both the prices and Quantity. SS dd" I dd do Q* > Q (e) A stock market crash lowers people's wealth since, mini-vans is a normal good, a fall in peoples Weath would decrease the demand for mini-vans. shifting ad to ad' (deftwards) dddd causing both price & Q ao a Quantity ito fall.