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Section A. Description of the good (non-price determinants of demand and supply) 1. There are three types of goods: inferior, normal, and luxurious.

Section A. Description of the good (non-price determinants of demand and supply)
1. There are three types of goods: inferior, normal, and luxurious. Which of these types do Toyota cars belong to? How will the demand for Toyota cars change during recession in a country? Illustrate your answer using the demand and supply model.

2. How has the recent natural disaster in Japan influenced the supply of Toyota automobiles? Illustrate the effect using the demand and supply model.

3. What is the impact of world oil prices increase on the demand for Toyota cars? Explain and illustrate your answer.

4. Imagine that Toyota Company developed a new production technic which reduces costs considerably. How this innovation can influence supply of the cars? Illustrate your answer.
5. A new environment protective government policy abolishes fees on public transport. What is the impact of such a policy on the demand for Toyota cars? Explain and illustrate your answer.



Section B. Price elasticity of demand
1) Explain whether price elasticity of demand is likely to be elastic or inelastic. Base your answer on three determinants of elasticity:
a) Determine whether there are any substitute products for this good. Name at least 2-3. Are they close to the products of Toyota Company?

b) Determine the approximate proportion of income spent on the Toyota cars.

c) Consider the necessity of the good. Compare with several other goods purchased by an average consumer.


2) If you were a manager of Toyota Company would you increase the price of the cars to increase the total revenue? Base your answer on the predicted elasticity value. Explain your answer using graphs if necessary.
4) According to the law of demand price elasticity of demand should be always negative. However elasticity value for years 2008-2009 and 2009-2010 are postive. Does it mean that demand curve becomes upward sloping during these years? If needed use graphs for the explanation of your answer.
(15 marks)


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