Question

 For each of the following events, identify which of the determinants of demand or supply are affected. If demand is unaffected by this event because it creates only a supply change, select the "None" option under the "Demand Determinant" column. Similarly, if supply is unaffected by this event! because it creates only a demand change, select the "None" option under the "Supply Determinant" column.

 Demand Determinant Supply Determinant Event People decide to have more children. The price of electric small cars falls. The discovery of a new source of iron ore lowers steel prices An economic recession lowers people's wealth A number of major car dealers decide to switch from selling gas- powered cars to selling electric cars. Show the effect of the following event on the market for gas-powered small cars: People decide to have more children.

Answer 1

• When people have more children they will use more cars so they demand more large cars. It is a demand determinant.
• Electric small cars and gas driven small cars are substitutes. Hence this is a demand determinant
• Discovery of a new resource that lowers steel price act as an input and so it is a supply determinant
• Economic recession that reduces income decreases the demand. Hence this is a demand determinant
• Sellers switching to other product will now produce less of gas driven cars so they supply less. Hence this is a supply determinant