Question

For each of the determinants of demand in Equation 2.1, identify an example illustrating the effect on the demand for hybrid gasoline-electric vehicles such as the Toyota Prius. Then do the same for each of the determinants of supply in Equation 2.2. In each instance, would equilibrium market price increase or decrease? Consider substitutes such as plug-in hybrids, the Nissan Leaf ad Chevy Volt, and complements such as gasoline and lithium ion laptop computer batteries.

Answer Grid

Chapter 2, Question 1

Question 1*

Q_D = f(P, P_S, P_C, Y, A, A_C, N, C_P, P_E, T_A, T/S . . .)

Determinant of Demand	Effect on current demand for Toyota Prius if determinant INCREASES	Effect on current demand for Toyota Prius if determinant Decreases
Price of substitute goods (PS)
Price of complementary goods (PC)
Consumer income levels (Y)
Advertising/marketing spending (A)
Advertising/marketing by competitors (AC)
Population (N)
Consumer preferences for the Prius (CP)
Expected future price of Prius (PE)
Time period for adjustment (TA)
Taxes on or subsidies for the Prius (T/S)

There are two ways to deal with each part of the question, namely, you can explain what would happen to the demand for the Toyota Prius if the the determinant in question (such as the price of a substitute good) increased, or, what would happen to the demand for the Toyota Prius if the the determinant decreased. As long as your conclusions are correct, your will have properly responded to the question. I strongly suggest that you use a table to present your responses to this question, so much so that I created a blank table for you to use to record and submit your answers.

Is there any way that you all can help me with this? I'm really confused, I have no idea what they are talking about.

Answer 1

(Question 1)

The question asks to evaluate the impact on the demand for Toyoya Prius, if a determinant of demand increases (positive change), or the determinant of demand decreases (negative change).

Determinant of Demand	Determinant INCREASES	Determinant DECREASES
Price of substitute goods (PS)	Demand: Increase (Higher price of substitutes will increase demand of a good)	Demand: Decrease (Lower price of substitutes will decrease demand of a good)
Price of complementary goods (PC)	Demand: Decrease (Higher price of substitutes will decrease demand of a good)	Demand: Increase (Lower price of substitutes will increase demand of a good)
Consumer income levels (Y)	Demand: Increase (Higher income will increase demand of a normal good)	Demand: Decrease (Lower income will decrease demand of a normal good)
Advertising/marketing spending (A)	Demand: Increase (Higher advertising will increase demand of a good)	Demand: Decrease (Lower advertising will decrease demand of a good)
Advertising/marketing by competitors (AC)	Demand: Decrease (Higher advertising by competitor will decrease demand of a good)	Demand: Increase (Lower advertising by competitor will increase demand of a good)
Population (N)	Demand: Increase (Higher population will increase demand of a good)	Demand: Decrease (Lower population will decrease demand of a good)
Consumer preferences for the Prius (CP)	Demand: Increase (Higher consumer preference will increase demand of a good)	Demand: Decrease (Lower consumer preference will decrease demand of a good)
Expected future price of Prius (PE)	Demand: Increase (Higher expected future price will increase current demand of a good)	Demand: Decrease (Lower expected future price will decrease current demand of a good)
Time period for adjustment (TA)	Demand: Decrease (Higher adjustment period will decrease demand of a good)	Demand: Decrease (Lower adjustment will increase current demand of a good)
Taxes on or subsidies for the Prius (T/S)	Demand: Decrease if Tax is imposed (Since a tax decreases supply)	Demand: Increase if Subsidy is offered (Since a subsidy increases supply)

As per Answering Policy, 1st question is answered.