(Solved): 3. Determinants of demand The following graph shows the demand curve for sedans in New York City. ...

3. Determinants of demand The following graph shows the demand curve for sedans in New York City. For simplicity, assume that all sedans are identical and sell for the same price. Initially, the graph 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 $3.00. 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. Graph Input Tool ? Demand for Sedans Demand for Sedans 40 Price of a sedan. (Thousand 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) PRICE (Thousands of dollars per sedan) 30 20 10 0 Demand 0 100 200 300 400 500 600 700 800 900 QUANTITY (Sedans per month) 20 450 50 4 3 Demand for Sedans Price of a sedan (Thousand of dollars) Quantity Demanded (Sedans per month) Demand Shifters Average Income 50 Demand (Thousands of dollars) Price of Gas 4 (Dollars per gallon) 3 Price of a Subway Ride (Dollars) 0 100 200 300 400 500 600 700 800 900 QUANTITY (Sedans per month) Consider the graph. Suppose that the price of a sedan increased from $15,000 to $20,000. This would cause a curve. An increase in average income causes a rightward Suppose that the price of a subway ride rises from $3.00 to $3.50. Because driving a car and taking the subway are increase in the price of a subway ride shifts the demand curve for sedans to the PRICE (Thousands of dollars per sedan) 40 Demand for Sedans 0 20 450 the demand the demand curve; therefore, you may conclude that sedans are good. (Hint: Try substituting different values for Average Income in the graph input tool and observing what happens.) , an