Part A: Quantitative Analysis Problem # 1: “Demand Analysis” Refer to Figures 5-
ID: 1225171 • Letter: P
Question
Part A: Quantitative Analysis
Problem # 1: “Demand Analysis”
Refer to Figures 5-5 and 5-6 on page 125 (Hellman Textbook).
Assume that insurance and valuable property are complementary goods and the insurance premium decreases.
a). Indicate whether a decrease in the insurance premium is an upward or downward movement along the demand curve of security equipment or instead involves an outward or inward shift in the demand curve of valuable property. Explain your answer.
b). Indicate whether a decrease in the insurance premium is an upward or downward movement along the demand curve of property insurance or instead involves an outward or inward shift in the demand curve of property insurance. Explain your answer.
CRIMES AGAINST PROPERTY 125 D' Quantity Figure 5-5 The Market for InsuranceExplanation / Answer
a. The decrease in the insurance premiums would bring in a rightward shift of the demand curve in the property market. This is because, the insurance and property are complementary goods. A decrease in the price of one, would bring about an increase in the demand for other. Considering one particular market, in general, when the price of the good changes, there is a movement along the curve. Only factors other than price, shifts the curve.
b. When the insurance premium decreases, the demand for insurance policy increases, and as a result, there is downward movement along the demand curve in case of market for insurance (fig 5-5). This is because as the price of insurance falls, the demand for them would rise and hence the quantity demanded would increase by the people.