CALCULATOR PRICE Thousands of dollars per sedan 50 Price of

CALCULATOR PRICE (Thousands of dollars per sedan) 50 Price of a Sedan Thousands of dollars 20 Quantity Demanded Sedans per month) 40 400 30 DEMAND SHIFTERS Current Values Initial Values 20 Average Income 50 50 Thousands of dollars Price of Gas Dollars per gallon) 10 Price of a Subway Ride Dollarsl 0 100 200 300 400 500 600 700 800 900 QUANTITY (Sedans per month) Reset to Initial ValuesCalculate Suppose that the price of a sedan decreased from $20,000 to $15,000. This would cause a the demand curve Suppose that the price of a subway ride rises from $1.50 to $2. Because driving a car and taking the subway are , an increase in the price of a subway ride shifts the demand curve for sedans to the

Solution

Suppose that the price of sedan decreased from $20,000 to $15,000. This would cause a movement along the demand curve. Because change in price , when all other factors are constant , this would change the quantity demanded of sedans. This shows the down movement along the demand curve. Quantity demanded of sedans increases from 400 to 500 sedans per month.

Suppose that the price of a subway rides rises from $1.50 to $2.Because driving a car and taking the subway are substitutes. Therefore, an increase in the price of a subway ride shifts the demand curve for sedans to the right.

Because taking the subway and driving a car both has the similar goal, so it can be substitute. If there is an increase in the price of subway rides , then more people start driving cars i.e sedans and this will increase the demand for cars. As there is no change in the price of cars but change in the price of substitute good .Therefore, this shifts the demand for sedans to the right.