Question

Ceteris paribus, which of the following would generally cause an increase in the demand curve for new automobiles?

A) Consumer expectations that the price of new automobiles will be lower next year
B) The new models being perceived as ugly compared with old models
C) An increase in consumers' income
D) A decrease in the price of new automobiles

Answer 1

An increase in consumers' income, assuming all other factors remain constant (ceteris paribus), generally causes an increase in the demand for new automobiles, which is graphically represented by a rightward shift of the demand curve.

Step-by-step explanation:

The scenario described involves a change in one of the determinants of demand: consumers' income. Ceteris paribus, an increase in consumers' income would generally increase the demand for new automobiles.

This is because cars are typically normal goods, and as income rises, people can afford to buy more of these goods. Graphically, this would be represented by a shift of the original demand curve Do to the right, indicating an increase in quantity demanded at each price level.

Other factors such as consumer tastes, population changes, and prices of related goods can also cause a shift in the demand curve. However, in the context of rising income levels and the ceteris paribus assumption, the demand curve will shift to the right, demonstrating higher demand for new cars as they become more affordable to consumers with increased income.