Question

Assume that consumers expect the prices on new cars to significantly increase next year. What point in above figure is most likely to be the new equilibrium price and quantity?

• A. Point 6
• B. Point 5
• C. Point 3
• D. Point 8

Answer 1

Answer: (B)

Point 5

If consumers expect the prices of new cars to significantly increase next year the demand for the cars will increase this year from D1 to D2. Future expectations of consumers is is one of the determinants of demand. The supply will remain the same at S1. The new equilibrium point for curve D2 and S1 is point 5.