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Chapter 3: Problem 7

The Toyota Prius is a gasoline/electric hybrid car that gets 54 miles to the gallon. An article in the Wall Street Journal noted that sales of the Prius had been hurt by low gasoline prices and that "Americans are now more likely to trade in a hybrid or an electric vehicle for an SUV." Does the article indicate that gasoline-powered cars and gasoline are substitutes or complements? Does it indicate that gasoline-powered cars and hybrids are substitutes or complements? Briefly explain. Source: Sean McClain, "Toyota's Prius Pays Price for Cheap Gasoline," Wall Street Journal, September 6, 2016 .

Short Answer

Expert verified
The article indicates that gasoline-powered cars and gasoline are substitutes as people tend to choose between them based on gasoline prices. Similarly, gasoline-powered cars and hybrids are also substitutes as people choose between them when gasoline prices fall.

Step by step solution

01

Identify the relationship between gasoline-powered cars and gasoline

First, determine the relationship between gasoline-powered cars and gasoline based on the given scenario. If the price of gasoline decreases and the demand for gasoline-powered cars increases, the two are likely substitutes.
02

Identify the relationship between gasoline-powered cars and hybrids

Next, determine the relationship between gasoline-powered cars and hybrids based on the given scenario. If the price of gasoline decreases (thereby making gasoline-powered cars more attractive) and the demand for hybrids decreases, gasoline-powered cars and hybrids are likely substitutes.
03

Formulate the explanation

The article suggests that as gasoline prices fall, more people are opting for gasoline-powered cars (like SUVs) over hybrids (like the Prius). This implies that when gasoline is cheaper, the demand for gasoline-powered cars increases (people trade in their hybrids for SUVs). Therefore, gasoline and gasoline-powered cars are not used together but are chosen over each other based on price, making them substitutes. Similarly, gasoline-powered cars and hybrids are also substitutes as they are chosen over each other by consumers based on the price of gasoline.

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Most popular questions from this chapter

In recent years, a number of cities have passed taxes on carbonated sodas to help reduce obesity and raise tax revenues. An article in the New York Times observed, "With that public momentum, a soda tax may be coming to a city near you." If this forecast is correct, what will be the effect on the demand for premium bottled water? Briefly explain. Source: Anahad O'Connor and Margot Sanger-Katz, “As Soda Taxes Gain Wider Acceptance, Your Bottle May Be Next," New York Times, November 26, 2016.

What do economists mean when they use the Latin expression ceteris paribus?

[Related to Solved Problem 3.3 on page 88\(]\) An article discusees the market for autographs by Mickey Mantle, the superstar center fielder for the New York Yankees during the 1950 s and 1960 s, "At card shows, golf outings, charity dinners, Mr. Mantle signed his name over and over." One expert on sports autographs was quoted as saying, "He was a real good signer.... He is not rare." Yet the article quoted another expert as saying, "Mr. Mantle's autograph ranks No. 3 of most-popular autographs, behind Babe Ruth and Muhammad Ali." A baseball signed by Mantle is likely to sell for the relatively high price of \(\$ 250\) to \(\$ 400\). By contrast, baseballs signed by Whitey Ford, a teammate of Mantle's on the Yankees, typically sell for less than \(\$ 150\). Use one graph to show both the demand and supply for autographs by Whitey Ford and the demand and supply for autographs by Mickey Mantle. Show how it is possible for the price of Mantle's autographs to be higher than the price of Ford's autographs, even though the supply of Mantle autographs is larger than the supply of Ford autographs.

What is the difference between a change in demand and a change in quantity demanded?

Years ago, an apple producer argued that the United States should enact a tariff, or a tax, on imports of bananas. His reasoning was that "the enormous imports of cheap bananas into the United States tend to curtail the domestic consumption of fresh fruits produced in the United States." a. Was the apple producer assuming that apples and bananas are substitutes or complements? Briefly explain. b. If a tariff on bananas acts as an increase in the cost of supplying bananas in the United States, use two demand and supply graphs to show the effects of the apple producer's proposal. One graph should show the effect on the banana market in the United States, and the other graph should show the effect on the apple market in the United States. Be sure to label the change in equilibrium price and quantity in each market and any shifts in the demand and supply curves.
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