This is a graded exercise. Please make sure to follow the instructions carefully, as an evaluator will be giving you feedback on your submission. You must submit your report as a file.
Write a 1-2 page report that explains the law of demand and the determinants of demand using the following example and set of scenarios:
A study found that lower airfares led some people to substitute flying for driving to their vacation destinations. This reduced the demand for car travel and led to reduced traffic fatalities, since air travel is safer per passenger mile than car travel. Using the logic suggested by that study, suggest how each of the following events would affect the number of highway fatalities in any one year as well as how each of the following would affect the demand curve for driving to vacation destinations.
- An increase in the price of gasoline
- A large reduction in rental rates for passenger vans
- An increase in airfares
Once you have considered the scenarios above, research another good or service that has a substitute. Imagine three different scenarios that could affect the demand curve for that good or service. Follow the same procedure as above, explaining how each scenario would affect the demand for the good or service.
Be sure to define demand and the determinants of demand in your response. Also address the question, how does a movement along the demand curve differ from a shift in the demand curve?