The demand for new recreational vehicles (motor homes) in the United States is h
ID: 1250770 • Letter: T
Question
The demand for new recreational vehicles (motor homes) in the United States is highly cyclical and sensitive to diesel fuel prices and interest rates. Given these characteristics, describe the effect of each of the following on the quantity demanded or the demand for new motor homes. Indicate whether the effect of each of the following is an upward or downward movement along a given demand curve or instead involves an outward or inward shift in the relevant demand curve for new motor homes. Explain your answers.- A decrease in the average price of new motor homes.
- An increased fear of traveling by air because of terrorist threats.
- A fall in the price of diesel fuel (used in many motor homes) because of a peaceful resolution of the war in Iraq.
- A significant rise in advertising by cruise ship operators.
Explanation / Answer
A decrease in the average price of new motor homes: movement along the same demand curve; higher quantity demanded (and lower price, of course). An increased fear of traveling by air because of terrorist threats: a shift outward/right in the demand curve, due to a change in preferences; higher quantity demanded and a higher price. A fall in the price of diesel fuel (used in many motor homes) because of a peaceful resolution of the war in Iraq: a shift outward/right in the demand curve, due to a decrease in the price of a complementary good; higher quantity demanded and a higher price. A significant rise in advertising by cruise ship operators: a shift inward/left in the demand curve, due to a decrease in the price of a substitute good; lower quantity demanded and a lower price.
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