People looking to trade in their old car for money off of their new car become
discouraged with the low trade in value, and decide either not to buy a new car
at all or to buy a cheaper model. The lower car sales is a reduction in demand,
because the decrease in resale value of used cars is not changing the prices of
the new cars, as a change in quantity demanded would suggest, it is changing
what people are willing to pay for the cars. A graph of the new demand curve
would actually be shifted to the left of the old demand curve, because the price
of new cars has not changed, but the number of new cars being sold has changed.
2. Escalating consumer debt, higher interest rates, and slow growth in real
income are all making it difficult for consumers to purchase cars. These factors
also are not changing the price of cars, and so they are changes in demand, not
quantity demanded. In other words, these factors are shifting the entire demand
curve to the left. 3. Ford and Toyota are making the price of buying a new car
cheaper, hoping that more people will want to purchase new cars. This is an
attempt to change the quantity demanded. Ford and Toyota are hoping that their
efforts will move them downward on a demand curve, hence more will people buy
the less-expensive new cars. An advertising campaign. If Toyota and Ford were to
start a new advertising campaign, they would be attempting to change the demand.
With a new advertising campaign, the car companies are hoping that the demand
curve would shift back to the right and more people would buy the cars they are
making at a price that returns their profit to its original level. Answers to
"Use Your Economic Reasoning" on pages 82 & 83 1. The U.S. has
already mined most of its high-quality, accessible natural resource deposits.
Other countries still have many high-quality, accessible deposits of natural
resources. 2. Technology is helping U.S. firms to lower costs, by increasing
their productivity while decreasing their human labor force. Using technology,
the productivity of each employee within the firm is very high. The pay role for
employees is less simply, because there are much fewer employees, but the
profits of the company increase, because the productivity increases. 3.
Technological advances in the mining industry are not changing the prices of the
products, but they are changing the amount of product produced. The coal
industry wants to sell more products at the same price, thereby moving the
demand curve to the right. This is a change in supply not in quantity supplied.
Answers to "Use Your Economic Reasoning" on pages 92 & 93 1. See
Graphs at bottom of next page. As the demand was going up for students with
college degrees the supply was not able to keep up. More and more companies were
willing and able to pay for college educated people, but there were not enough
college graduates to "go around." So the companies that got the
college graduates were the ones who were willing to pay the most money. These
inflated the entire market of incomes for college graduates, because the demand
was so much greater than the supply. 2. Now we will find that the supply of
college graduates is gradually catching up to the demand for them. Unless the
demand for college graduates continues to grow, as I suspect and hope it will,
we will reach an equilibrium were the only difference in pay between high school
and college graduates will be the cost of going to college. In this case, the
amount that people are willing to pay for a college graduate will not be as high
because there are a lot more college graduates in the market. The supply will
also level out, because high school students will no longer believe that it is
to their advantage to go to college, because the incentive is not that great.
Answers to 1, 2, & 7 of "Problems and Question for Discussion" on
pages 104 & 105 1. To me a need is something that you literally can not live
without. If you have the ability to pay for a need, then you had better pay for
it--needs are not really a choice. Needs are not things we choose, needs are
things that are existence as humans force upon us. Clearly the girl who won't
buy a shirt because she wouldn't want to use her allowance money is not in need
of that shirt. She has the ability to buy the shirt. She simply is not willing
to buy it with her own money. Shirts can be a need but they are not a need when
we choose something that we want (having an allowance savings) instead of
something that we need. Demand depends on both willingness and ability. If
people are willing to pay the going price for something and have the ability to
do so, then demand tells them that they can have it. Demand includes not just
what people need to buy, but also what people want to buy. Demand governs the
bread market (bread being more of a need then a want) and it governs the
computer game market (computer games being to me a clear example of a want and
not a need.) 2. Unless Podunk College had just made a substantial increase in
the cost of attending it, the drop in enrollment has to be in the demand rather
than the quantity demanded. This means that for some reason the entire demand
curve for Podunk College has shifted to the left. The are many causes of such a
shift. Maybe the student's in that area can no longer afford to go to college at
Podunk. Maybe Podunk has fallen out of favor with the student's of that area,
who would now prefer to go somewhere else. Perhaps, the prices of other colleges
near Podunk have not risen so much as Podunk's tuition, or maybe Podunk can not
offer the same amount of financial aid to students that they once could. Perhaps
the number of people who want to go to college has just dropped, because
students no longer believe that a college education is worth the cost. 7.
Clearly the people who enjoy tennis and can most afford to pay the fee are going
to be the most supportive of having a fee, because a fee will allow them to use
the courts, while keeping off the people who can not afford. Perhaps the people
who live near the tennis courts and don't like the crowds at the tennis courts
would also support the fee. The government would like a fee simply because they
get to keep the revenue. And the taxpayers might be in support of the fee,
because the money raised from the tennis courts might reduce taxes or be
diverted to programs that would more benefit them. I suppose you might say that
the demand for the courts is high, but, since tennis courts are currently
publicly owned, there is nothing to reduce the demand for the courts. If tennis
courts were privately owned, than this particular court would have a fee to get
in, and, as the courts started to get over crowded, the fee would go up. Then,
somebody else in town might start to run a court of their own and the some
people would go over there to play, and then the competition between the two
courts would keep them from over charging.