Tuesday, December 25, 2012

Car Sales

Alzheimer's defense.  Here's today's much needed problem.

True or False:
If we observe a reduction in the number of cars being purchased, then we should expect this change in demand to lead to a fall in price.

This question is partly true.  If the reason why the number of cars being purchased is due to a decrease in demand, then a fall in price is logical.  However, the supply curve can shift to the left as well.  A leftward shift of the supply curve would raise the price of cars and as a result, fewer cars would be purchased.

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