Suppose the Demand for Large (And Therefore High-Gasoline Consumption) Cars

question 113

Multiple Choice

Suppose the demand for large (and therefore high-gasoline consumption) cars decreases sharply during an energy crisis. The most likely market adjustment would be

• A) a sharp rise in the price of large cars in the short run as people rush to purchase these vehicles before producers cut back on manufacturing them.
• B) a moderate increase in short-run prices, followed by a larger long-run price increase as the supply of large cars is depleted.
• C) lower short-run prices, which will lead to an expansion in the number of large cars sold.
• D) a decrease in the price of large cars in the short run, leading to a reduction in output, which will moderate the price decline in the long run.

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Definitions:

Deed of Trust

A legal document used in some states that involves three parties—the borrower, the lender, and the trustee—and it serves as a lien on real property.

Default

The failure to fulfill a legal obligation, especially the failure to pay back a loan according to the agreed-upon terms.

Beneficiary

An individual or entity entitled to receive benefits or assets under a legal instrument, such as a will, trust, or insurance policy.

Land Contract

A conditional agreement for the sale and purchase of real estate in which the legal title to the property is retained by the seller until the purchaser has fulfilled the agreement, usually by completing the payment of the agreed-on purchase price.