What are the potential effects in the market for automobiles if the cost of steel and rubber used in the production of automobiles increases. a) draw a supply/demand graph of the automobile market. b) indicate starting equilibrium price and equilibrium quantity. c) analyze graphically the effect of the change given above on equilibrium price and equilibrium quantity in the automobile market.
What are the potential effects in the market for automobiles if the cost of steel and rubber used in the production of automobiles increases. a) draw a supply/demand graph of the automobile market. b) indicate starting
The price of inputs is a factor that determines the supply of a product.
A change in the price of factors or inputs that are used in production causes a change in the cost of production which in result brings a change in supply. For example, when the price of input rises then the unit cost of production will increase. With the higher cost of production, it is profitable to produce fewer units of outputs, as a result, the supply decreases, and decreases in supply will cause a leftward shift in the supply curve.
Therefore, a rise in the price of steel and rubber would increase the cost of production of automobiles that is why the supply of automobiles will fall.
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