Determinants of demand The following calculator shows the demand curve for sedans (for example, Toyota Camrys or Honda Accords) in New York City. For simplicity, assume that all sedans are identical and sell for the same price. Initially, the calculator shows market demand under the following circumstances: Average household income is $50,000 per year, the price of a gallon of regular unleaded gas is $4 per gallon, and the price of a subway ride is $2.00. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph. Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. Demand for Sedans 0 100 200 300 400 500 600 700 800 900 40 30 20 10 0 PRICE (Thousands of dollars per sedan) QUANTITY (Sedans per month) Demand Graph Input Tool Demand for Sedans Price of a sedan (Thousands of dollars) Quantity Demanded (Sedans per month) Demand Shifters Average Income (Thousands of dollars) Price of Gas (Dollars per gallon) Price of a Subway Ride (Dollars) Consider the graph. Suppose that the price of a sedan increased from $10,000 to $15,000. This would cause a the demand curve. An increase in average income causes a rightward the demand curve; therefore, you may conclude that sedans are good. (Hint: Try substituting different values for Average Income in the calculator and observing what happens.) Suppose that, due to an increase in the number of a subways, the price of a subway ride falls from $2.00 to $1.50. Because driving a car and taking the subway are , a decrease in the price of a subway ride shifts the demand curve for sedans to the .
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