Marketing

3-3 (Key Question) What effect will each of the following have on the demand for small automobiles such as the Mini Cooper and Smart car?

a. Small automobiles become more fashionable.

b. The price of large automobiles rises (with the price of small autos remaining the same).

c. Income declines and small autos are an inferior good.

d. Consumers anticipate the price of small autos will greatly come down in the near future.

e. The price of gasoline substantially drops.

Demand increases in (a), (b), and (c); decreases in (d). The last one (e) is ambiguous. As autos and gas are complements, one could argue that the decrease in gas prices would stimulate demand for all cars, including small ones. However, one could also argue that small cars are attractive to consumers because of fuel efficiency, and that a decrease in gas prices effectively reduces the price of the “gas guzzling” substitutes. That would encourage consumers to switch from smaller to larger cars (SUVs), and demand for small automobiles would fall. [This presents a good illustration of the complexity of many of these changes.]

3-6 (Key Question) What effect will each of the following have on the supply of automobile tires?

a. A technological advance in the methods of producing tires.

b. A decline in the number of firms in the tire industry.

c. An increase in the price of rubber used in the production of tires.

d. The expectation that the equilibrium price of auto tires will be lower in the future than it is currently.

e. A decline in the price of large tires used for semi-trucks and earth hauling rigs (with no change in the price of auto tires).

f. The levying of a per-unit tax in each auto tire sold.

g. The granting of a 50-cent-per-unit subsidy for each auto tire produced.

Supply increases in (a), (d), (e), and (g); decreases in (b), (c), and (f).

3-8 (Key Question) Suppose the total demand for...