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. In an effort to reduce congestion in central London, vehicle owners must now purchase expensive passes to drive there. As a result, the demand for public transportation (busses, the tube) _________ .

2.   When the price of gasoline broke the magic $4.00 per gal, makers of large vehicles suddenly faced a ___________ demand for them.

3.   Automobiles are an example of a normal good. This designation means that as per capita income increases, the demand for automobiles ______________.

4. Recently an outbreak of E.coli (which causes intestinal distress, liver damage, and sometimes death) was attributed to contaminated Romaine lettuce grown in Yuma, Arizona.   As a result, the demand for other varieties of lettuce (not infected by the virus) ________________.

5.   If research ever shows conclusively that increased cell phone use is linked to the increased incidence of brain tumors, then the demand for cell phone might ______________ .

Variables typically included in a multivariate supply function (other than the price and quantity of the item the supply function represents) are prices of other goods that use similar input resources for production, expectations, the number of suppliers, techniques of production, taxes and subsidies, and prices of input resources, weather. Please answer the following questions about the affect changes in other variables might have on the supply of the item. These changes will either cause supply to increase (shift right) or decrease (shift left). Use either word as applicable, for the short answer.

1. The production of Ethanol is being significantly subsidized by increasing the tax on “real gas” (which contains no Ethanol). Therefore, land devoted to growing corn is increasing and that devoted to growing wheat is decreasing. Thus it is likely that the supply of wheat will ______________.

2. Productivity is a key variable in the supply of items. An increase in productivity translates into a ____________ in the supply of the items.

3. Jet fuel prices are soaring. Therefore an economist would not be surprised to learn that airlines are _________________ the number of planes they are flying, hoping to more completely fill the remaining flights.

4. American automobile manufactures are responding to the increased demand for SUV and Crossover styles by ____________ the supply of them and ________________ the supply of unpopular Sedan styles..

5. Think of highways as a resource used in the production of highway transportation. Thus building more and better highways is likely to _______________ the supply of vehicles using them.

Answer 1

1. In an effort to reduce congestion in central London, vehicle owners must now purchase expensive passes to drive there. As a result, the demand for public transportation (busses, the tube) increases as it is public transport becomes attractive option rather than private vehicles and demand curve of public transportation shifts to the right. .

2.   When the price of gasoline broke the magic $4.00 per gal, makers of large vehicles suddenly faced a decrease in demand for them as it will be better to buy small vehicles which can travel further on a gallon of gasoline.

3.   Automobiles are an example of a normal good. This designation means that as per capita income increases, the demand for automobiles increases as normal goods have positive relationship between income and quantity demanded.

4. Recently an outbreak of E.coli (which causes intestinal distress, liver damage, and sometimes death) was attributed to contaminated Romaine lettuce grown in Yuma, Arizona.   As a result, the demand for other varieties of lettuce (not infected by the virus) increases as lettuce not infected by the virus becomes substitutes for lettuce grown in Arizona.

5.   If research ever shows conclusively that increased cell phone use is linked to the increased incidence of brain tumors, then the demand for cell phone might decrease as the results of the study can influence the consumer taste and preferences. .