In 1970 and 1980, the nominal price of motor fuel rose much more rapidly than th
ID: 1239836 • Letter: I
Question
In 1970 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 leveled off and then began to fall; but the quantity sold began to fall. Which one or more of the following hypotheses do you think best explains the behavior of motor fuel sales in 1981 and 1982? Illustrate each hypothesis with a supply and demand curve.A. In the 1970
Explanation / Answer
a) demand is inversaly proportional to price as price was increasing demand have negative slope in 81 ,82 price was decreasing hence positive slope of demand curve