Consider the market for purchase of new cars.
(a) What factors likely influence the demand for cars? That is, either for an individual or in the aggregate, what factors will cause either movements along the demand curve for cars, or shifts of the demand curve for cars? Identify at least four factors.
(b) If you were to draw a demand curve for cars, how would you label the axes-that is, what are you measuring along each axis? Would this demand curve slope up or down, be vertical, or be horizontal? Why?
(c) What factors likely affect the supply of cars? Identify at least three factors.
(d) If you were to graph the supply of cars, would it slope up or down, be vertical, or be horizontal? Why?
(e) If the cost of steel goes up, which (if either) of these curves might be affected? How? What will happen to the equilibrium price and quantity of cars? Why?
(f) If the cost of parking goes up, which (if either) of these curves might be affected? How? What will happen to the equilibrium price and quantity of cars? Why?
(g) The U.S. Environmental Protection Agency will require new light trucks and sport utility vehicles (SUVs) to install new pollution control devices that will increase their cost. For the purposes of this question and from the perspective of federal rules, these are not cars, even though people use them in the same way as they use cars. Which (if either) of the supply and/or demand curves for cars might be affected? How and why? What will happen to the equilibrium price and quantity of cars?
(h) Consider the difference between the short run of a few days or weeks and the long run of a few months or years. Suppose that the price of gasoline goes up. Which, if either, curve do you expect to be affected in the short run? How and why? What will happen to the equilibrium price and quantity of cars? Why?
(i) In the long run, do you expect additional changes beyond those you identified in (h)? If so, what are they, and why?