Question

a.) Suppose we are analyzing the market for automobile tires. Explain the impact of each of the following on demand or supply, indicate the direction of the shift (left or right), and show how equilibrium price and quantity would change.

i.) An increase in the number of auto buyers

ii.) Government levy a new tax on each auto tire produced

iii.) Government decided to subsidy $2 per unit for each auto tire produced

iv.) A decrease in the number of firms in the tire industry

v.) A new technology advance in the methods of producing new tires

b.) Explain the following: In a two-country world, the free trade does not make everyone in the two countries better off. Why should we promote free trade internationally?

c.) How does a tax on buyers of a product affect market outcomes?

Answer 1