Station Wagon and Minivans A. People Essay

3. Consider the market for minivans. For each of the events listed here, identify which of the determinants of demand or supply are affected, also indicate whether demand or supply increases or decreases.

Then draw the diagram to show the effect on the past and quantity of minivans A. People decide to have more children.Ans in: . If people decide to have more children, they will want larger vehicles for hauling their kids around, so the demand for minivans will increase. Supply will not be affected.

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The result is a rise in both the price and the quantity sold, as Figure 12 shows.B. A strike by steel workers raises steel prices.Ans in : . If a strike by steelworkers raises steel prices, the cost of producing a minivan rises and the supply of minivans decreases. Demand will not be affected. The result is a rise in the price of minivans and a decline in the quantity soldC.

Engineers develop new automated machinery for the production of minivans. Ans in: The development of new automated machinery for the production of minivans is an improvement in technology. This reduction in firms’ costs will result in an increase in supply. Demand is not affected.

The result is a decline in the price of minivans and an increase in the quantity sold Supply increases, so the price falls and the quantity rises.D. the price of sports utility vehicles risesAns in: The rise in the price of sport utility vehicles affects minivan demand because sport utility vehicles are substitutes for minivans.

The result is an increase in demand for minivans. Supply is not affected. The equilibrium price and quantity of minivans both riseE.

A stock market crash lowers peoples wealthy.Ans in :The reduction in peoples’ wealth caused by a stock-market crash reduces their income, leading to a reduction in the demand for minivans, because minivans are likely a normal good. Supply is not affected. As a result, both the equilibrium price and the equilibrium quantity declineDemand decreases and supply decreases, so the quantity certainly falls and the change in the price is ambiguous.


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