The Substitution Effect - 33

The increase in price of locally made cars has caused some consumers to switch their preferences to imported cars, of a similar size and style. Car yards selling these imported cars notice an increase in demand for their product. They decide to increase their sales price from $16,000 to $19,000. Despite the increase in price, the quantity sold per week increases from seven to ten. Both cars are now more expensive than they were before; however, the imported car is now relatively cheaper than the locally made car, and as a result demand for the imported car expands.