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In the 1979 and 1980 the nominal price of motor fuel rose much more rapidly than the general price level, pushing up the relative price of motor fuel. As we would expect, the quantity sold decreased. In 1981 and 1982 the relative price sold continued to fall. Which one or more of the following hypotheses do you think best explains the behavior or motor fuel sales in 1981 and 1982? a. In the 1970s the demand curve had the usual negative slope. However in 1981 and 1982 the demand curve shifted to an unusual positively sloped position. b. The demand curve had a negative slope throughout the period. However the recession of 1981 and 1982 reduced consumers real incomes and thus shifted the demand curve. c. The demand curve has a negative slope at all times, but the shape depends partly on how much time consumers have to adjust a change in prices. Over a short period the demand curve is fairly steep because a few adjustments can be made. Over the long term, it has a somewhat flatter slope such as buying more fuel efficient cars or moving closer to the job can be made. Thus the decreases in fuel sales in 1981 and 1982 were belayed reactions to the price increase that occurred in 1979 and 1980

Business Economics, Economics

  • Category:- Business Economics
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