New cars are normal goods. What will happen to the equilibrium price of new cars if the price of gasoline rises, the price of steel falls, public transportation becomes cheaper and more comfortable, auto-workers accept lower wages, and automobile insurance becomes more expensive?

a. Price will rise.

b. Price will fall.

c. Price will stay exactly the same.

d. The price change will be ambiguous.

The correct answer is b. Price will fall.

Explanation:

DETERMINANTS OF THE DEMAND:

Price of the good: Increasing the price of a good decreases the quantity demanded and vice versa. Price of substitute goods: If the price of a good Y, a substitute good of good X, increases, then the demand for good X will increase, and if the price of good Y (good substitute for X) decreases, the demand for X will decrease. For example, if the price of audio cassettes increases, the demand for compact discs may increase. Price of complementary goods: If the price of a good Y, a complementary good to good X, increases, then the demand for X will decrease and vice versa. For example, if the price of gasoline increases, the demand for cars that use gasoline could decrease, as people will prefer vehicles that use cheaper fuels. Consumer income: In normal goods, as consumer income increases, demand for a good will increase and vice versa. On the contrary, in the lower goods, as the income of the consumer increases, the demand for the good will decrease. Tastes and preferences: by increasing preferences for a good (whether by fashion, season, etc.) the demand for it will increase. Population: As the population increases, the demand for a good is expected to increase as there is a greater number of consumers with the same need. Expected future prices: If the price of a good is expected to increase over time, the immediate demand for this good will increase. On the other hand, if the price is expected to decrease in the future, the demand will decrease now, as people will postpone their purchase decision until the price drops.

B) Price will fall.

Explanation:

The five possible scenarios result in a decrease in the equilibrium price, so we can assume that the price of new cars will definitely fall.

If the price of gasoline increases, then the quantity demanded of new cars will decrease because gasoline is a complementary good to new cars. This will result in a lower equilibrium price. If the price of steel falls, the supply curve of new cars will shift to the right and the price of new cars will decrease at every level of demand. This will result in a lower equilibrium price. If public transportation becomes cheaper and more conformable, the demand for new cars should decrease since the price of its substitute decreases. This will result in a lower equilibrium price. If the wages of auto workers deceases, the supply curve of new cars will shift to the right and the price of new cars will decrease at every level of demand. This will result in a lower equilibrium price. If the price of auto insurance increases, then the quantity demanded of new cars will decrease because auto insurance is a complementary good to new cars. This will result in a lower equilibrium price.