Question

review question 03-01
what effect will each of the following have on the demand for small cars such as the mini cooper and fiat 500?
a. small cars become more fashionable: (click to select)
b. the price of large cars rises (with the price of small cars remaining the same): (click to select)
c. income declines and small cars are an inferior good: (click to select)
d. consumers anticipate that the price of small cars will decrease substantially in the near future: (click to select)
e. the price of gasoline substantially drops: (click to select)

Explanation:

a. When a product becomes more fashionable, consumer preferences shift toward it, increasing demand.
b. Large cars are substitutes for small cars; a price rise of substitutes increases demand for small cars.
c. Inferior goods see demand rise when consumer income falls, as they are more affordable alternatives.
d. If consumers expect a future price drop, they delay purchases, reducing current demand.
e. Gasoline is a complement to cars; a price drop makes using all cars cheaper, increasing demand for small cars.

Answer:

a. Increase in demand
b. Increase in demand
c. Increase in demand
d. Decrease in demand
e. Increase in demand