Q: Consider the market for minivans. For each of the events listed below, identify which of the determinants of demand or supply are affected. Also, indicate whether demand or supply increases or decreases and the resulting effect on price and quantity demanded.

1. People decide to have more children.
2. A strike by steelworkers raises steel prices.
3. The price of sport utility vehicles rise.
4. A stock market crash lowers people's income.

A:

1. People decide to have more children: I assumed from this statement, that it would be safe to say that the number of buyers in the minivan market has increased, or the demand for minivans has increased. As more families have an increased number of children then the "normal" number of children/family, it stands to reason that each family that is in the position to afford a choice in transportation would choose a vehicle that accommodates additional family members. Minivans are a type of vehicle that meets that criteria. An increase in the demand for minivans shifts the equilibrium curve of the minivan market, and could result in buyers willing to pay an increased price/minivan that the car dealer has in stock, and an increased number of minivans are sold. If this trend continues, an auto manufacturer could then choose to increase the number of minivans that the company produces each year, an increased supply in order to meet the increased demand in the minivan market. However, this assumption is based on the buyers' preference of a minivan to another type of vehicle, not the preference of one type of minivan to another type of minivan.

2. A strike by steelworkers raises steel prices: Steel is a critical input item used to make a minivan. In this case, the supply of steel is affected (decreased) by a steel worker strike, not necessarily the demand of buyers in the minivan market. Therefore, the equilibrium price of a complete minivan is going to increase as a result of the decreased will of the auto dealers to sell a complete minivan at any given price. With an increased price, comes a decreased quantity of minivans that are sold.

3. The price of sport utility vehicles rises: A family that is looking to buy a new vehicle has the choice between many different types. However, a sport utility vehicle and a minivan may have overlapping markets, both are vehicles that can accommodate more people then a standard car. Therefore, it may be assumed that as the price of a sport utility vehicle increases, there will be less quantity of sport utility vehicles sold. However, that does not necessarily mean that the demand for larger vehicles has decreased. For this reason, I determined that the number of buyers in the minivan market will increase. As seen in the first question, as the demand for minivans increases, the equilibrium curve will shift, and people will be willing to pay more per minivan then they once were, and the price for minivans will also increase.

4. A stock market crash lowers peoples' incomes: I considered minivans as a "normal good", meaning, that as peoples' incomes fell, the demand that people had for a minivan at any price would also fall. At any given price, the quantity of minivans sold would decrease. This could result in a surplus of minivans. As a result of having a surplus that cannot be sold, dealers may choose to decrease the price/minivan, and to also decrease the amount of minivans that they are manufacturing, until a new equilibrium is reached, that balances peoples new, lower income with minivan demand