Question

The quantity demanded for cars monthly is shown in the table below:

Demand for Cars
Price (dollars) Quantity of Cars Demanded
(thousands of cars)
23,000 600
21,000 620
19,000 640
17,000 660
15,000 680

An increase in income increases the quantity demanded by 10% at every price, what is the new monthly quantity demanded for cars (in thousands of cars)?

Answer 1

Answer:

An income increase of will increase the monthly demand from 3200,000 to 3,520,000 cars per month.

Explanation:

An increase in income will increase the Q demanded by 10% at each price level. So the new quantity demanded is shown in the table below.

Price Qold Qnew

23000 600          660

21000 620          682

19000 640          704

17000 660          726

15000 680          748

So by summing both columns we find out that the old quantity demanded was 3,200,000 and the new quantity demanded is 3,520,000.

In the case of above example, the demand curve will simply shift upwards by 10%.