DemandChangePriceComplement

by jwietl
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DemandChangePriceComplement

I’m ______________________ speaking to you from Joliet Central High School, room 377 for the Institute for the Teaching of Economics in All Subject Areas. You are listening to:The Institute for the Teaching of Economics in All Subject AreasVolume Two, Issue FourDeterminants of Demand/Change in the Price of A Complementary GoodIn Volume Two, Issue One we discussed how the rapid rise in consumer income during the post World War II era led to an increase in consumer demand. With so many people working and making a better living than ever before, the baby boom that had begun during World War II continued. The birthrate, which had fallen to 19 births per 1,000 people during the Depression, soared to more than 25 births per 1,000 in its peak year of 1955. Growing families retreated from aging cities and sought new houses in suburbs that ringed the urban areas. Low-interest mortgages offered to veterans through the Servicemen’s Readjustment Act of 1944, more commonly referred to as the GI Bill, and housing developers like William J. Levitt, combined to create new communities, or suburbs, called Levitttowns. Since many of the residents in these new communities had to commute, or travel to the central city for employment, Americans began to depend more on the automobile than ever before. To meet demand, automakers started introducing new car designs every year. People eagerly waited for the unveiling of the latest models. During the 1950s American automakers produced up to 8 million new cars each year. According to economic theory, a change in the price of a complementary good is considered a determinant of demand. In this case, an increase in the demand for homes in the suburbs led to an increase in the demand for a complementary good, automobiles. This will cause the demand curve for autos to shift to the right. As a result, price will increase and quantity demanded will increase.


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