Indicate whether each of the following events will shift the monthly demand curve for the Ford Taurus (a midsize car) to the right, to the left, or not at all: (a) GM introduces a new line of small, fuel-efficient cars; (b) Following an agreement between the US and Japan, Japanese car manufacturers will ''voluntarily'' reduce their exports of medium sized cars to the US; (c) The cost of steel increases.

Question

Quizplus · Accepted Answer

A demand shift to the left means that, at the same price, people would want to purchase fewer units or, equivalently, they would require a lower price to purchase at the level they were purchasing before. Factors affecting supply conditions (such as cost conditions) do not affect the desirability of the product (at the same price). Notice that the price of steel is something that would affect the cost of producing a Taurus. This would affect the conditions of supply, but do not in themselves affect the desirability of the Taurus. You may think that an increase in cost may affect the price of the Taurus, which will change the amount demanded in the market price. This is a possible equilibrium outcome: as the supply conditions change, the supply curve shifts, changing the equilibrium price and, hence, the equilibrium number of cars traded.

Indicate Whether Each of the Following Events Will Shift the Monthly