A1 . The demand in Japan for new automobiles is elastic and sensitive to market

Question

A1. The demand in Japan for new automobiles is elastic and sensitive to market prices. Given that, describe the effect of each of the following on the quantity demanded or the demand for new autos in Japan. Indicate whether the effect of each is an upward or downward movement along a given demand curve or instead involves an outward or inward shift in the demand curve for new autos. Explain your answers.

a. A decrease in the average price of new Japanese automobiles.
b. A fall in Japanese interest rates.
c. A rise in the price of public transportation in Japan.
d. A rise in the price of food in the United States.

A2.Suppose the demand for beer is characterized by the following point elasticities:

own price elasticity = -2.5

cross-price elasticity with soda = +3

income elasticity = +2

Based on the given elasticities, answer the following. Explain your answers.

Explanation / Answer

Ans:1

a) A decrease in the average price of new Japanese automobiles will increase in the quantity demanded for automobiles,as the demand is elastic and sensitive to market price.

b)A fall in Japanese interest rates.-A fall in interest rates will increase the demand for Japan automobiles as the market price of the autobobiles will fall.

c) A rise in the price of public transportation in Japan.A rise in the price of public transportation will increase the demand for the new automobiles.

d)A rise in the price of food in the United States.-A rise in the price of food in the united states will neither increase or decrease the demand of new automobiles.

2.a. If a firm in the industry wishes to increase total sales revenue (ignoring cost considerations),it will lower its selling price as when the price decreases the demand for the product increases.

b. if the price of soda falls by 2% then the demand for beer inceases as they both are substitute.

c.The demand for beer increases if the consumer income rises by 5%

d.Beer is positively correlated with Income. Beer is not inferior good ass the increase in demand will increase in the quantity demanded.

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