Question

In: Economics

Consider the market for aluminum containers. Describe the outcome in the market for the following events....

Consider the market for aluminum containers. Describe the outcome in the market for the following events. Answer the following questions:

Does supply or demand increase or decrease?

Does market price increase, decrease, remain unchanged or is it undetermined?

Does the market quantity bought and sold increase, decrease, remain unchanged or is it undetermined?

“Changes in government regulations restrict the use of aluminum containers in the food manufacturing industry. At the same time [i.e. simultaneous to the regulatory change], new production technology has reduced the cost of manufacturing aluminum containers.”

Solutions

Expert Solution

It has been stated that changes in government regulations restrict the use of aluminium containers in the food manufacturing industry.

This will compel the food manufacturing industry to use less quantity of aluminium containers and, thus, they will demand fewer aluminium containers.

Thus,

The demand for aluminium containers will decrease.

It has been stated that new production technology has reduced the cost of manufacturing aluminium containers.

This reduction in cost will increase the profit margin of the manufacturer of aluminium containers. This will induce them to increase production of aluminium containers and thereby supply.

Thus,

The supply of aluminium containers will increase.

When there is simultaneous decrease in demand and increase in supply then there is definite decrease in price.

Thus,

The market price will decrease.

The impact on the market quantity depends on the magnitudde of change in both demand and supply.

If decrease in demand is greater than the increase in supply then market quantity decreases.

On the other hand, if decrease in demand is less than the increase in supply then market quantity decreases.

In given case, the magnitude of change in both demand and supply is not provided.

Thus,

The market quantity bought and sold is undetermined.

Rahul Sunny answered 8 months ago
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