"Falling consumer income from the recent recession has hurt automakers in more ways than one. Not only have sales of new cars fallen, but car prices have fallen as well. As a result, the major automakers have announced cutbacks in production and layoffs of workers." Which of the following places these statements in the proper economic terminology within the context of the supply and demand model? [Note: It may help to graph this first.]

Question

Quizplus · Accepted Answer

The statement describes a decrease in both demand (from falling consumer income) and quantity supplied (due to cutbacks in production and layoffs). This is represented by a leftward shift of both the demand and supply curves, resulting in a decrease in equilibrium quantity and a possible decrease in equilibrium price. Therefore, B is the correct answer as it describes a decrease in demand and a decrease in quantity supplied.

"Falling Consumer Income from the Recent Recession Has Hurt Automakers