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

Question

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 thequantity demandedor thedemandfor new autos in Japan. Indicate whether the effect of each is an upward or downward movementalonga given demand curve or instead involves an outward or inward shiftinthe 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.

Explanation / Answer

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.

As a result of lower price, people will buy higher amount of the commodity. There will be downward movement along the demand curve.

b. A fall in Japanese interest rates.

This will make the repayment of car loans easier. As a result, people will buy higher no. of cars at constant price. Thus, there will be outward shift of demand curve.

c. A rise in the price of public transportation in Japan.

Public transport and cars are substitutes. Thus, increase in price of public transport will cause increase in demand for cars and there will be outward shift of demand curve.

d. A rise in the price of food in the United States.

Increase in price of food in US will cause decrease in export of Japanese cars. Thus, the demand for cars will shift inward.

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