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. Vehicle owners wishing to drive into central London must purchase passes to do so costing about $13.00 (as of 6-2011) per day. The policy is attempting to reduce traffic congestion and pollution.  It has been in effect for several years.  A long-term effect of the policy is to _______________ the demand for office space in Central London thus increasing building vacancies.

2.    The price of petrol in London (as of 6-2011) was about $12 - $13 per gallon.  As a result, the demand          for bicycles is _________________.

3.    Vehicle license plates in England increase sharply in price the older is the age of the vehicle.  As a result, the demand for new vehicles is _________________ and the demand for used vehicles is ______________.  This policy encourages the purchase of ever more efficient vehicles.

4.   Monthly rates for single-line household plain old telephone service (POTS) keeps increasing.  Cell phone rates increase too, but their service plans offer more options when the rate is increased.  Many therefore are _____________ their demand for plain old telephone service.

5.   I have my own Italian espresso machine.  Occasionally I opt for a commercial medium-sized Latte for $3.44 a drink.  My favorite coffee store has, however, raised the price to $3.99 per drink.  I am thus likely to ______________ my demand for their Lattes

Answer 1

Answer 1 :-

Decrease

The purchases of passes will increase the cost of office space in Central London due to which residents will choose to buy office space in Central London. This will decrease the demand for office space in Central London.

Answer 2 :-

Increased

Due to high prices of petrol in London which is the main fuel for running vehicles, the cost of transportation of vehicles have increased and it's only substitute is bicycle. Thus the demand of bicycle will increase.

Answer 3 :-

New Vehicles increased, Used vehicles decreased

Older vehicles licence plates are more costly in comparison to licence plate of new vehicles due to which demand for new vehicles will increase and demand for used vehicles will decrease

Answer 4 :-

Decrease

The demand for old telephone service will decrease as it is a costly option and its rate keeps on increasing. Though cell phone rates increased too but they provide a variety of services in comparison to old phones services due to which consumers prefer first cell phones over traditional telephone lines

Answer 5 :-

Decrease

And there is an inverse relationship between price of a good and its quantity demanded therefore when price of the coffee increases the consumer would choose to decrease its demand due to the inverse relationship between price and demand of the good.