Question

The following events shift either the supply or demand curve for American-made automobiles. Draw a set of market supply and demand curve that illustrates each of the following historical events: Serious strikes hit the auto industry during the 1930s. During World War II, producers of automobiles converted their factories to war production. In 1973, oil prices rose dramatically. Pick-up trucks, mini-vans, and recreation vehicles gained popularity in the 1980s, and many families bought such vehicles rather than automobiles.

Answer 1

1) Strikes in the auto industry in the 1930s.

Due to the strikes, the production of automobiles will be interrupted and the supply will fall, thus shifting the supply curve to the left. With the demand constant, this shift in the supply curve will raise equilibrium prices.

2) Durig WWII, the producers of automobiles converted their factories into war production.

This will again interrupt the supply of automobiles and the supply curve will shift to the left.

3) In 1973, oil prices rose dramatically

With a steep rise in oil prices, the demand for automobiles will fall as consumers do not want their costs to increase. This will shift the demand curve to the left. With supply being constant, the shift in the demand curve will lead to a fall in automobile prices.

4) Due to the rise in popularity of minivans and recreational vehicles and a fall in demand in automobiles, the demand curve will again shift to the left (for automobiles) due to decreased demand.