Assume that the prices of resources used to produce automobiles increases. What does the supply and...

Assume that the prices of resources used to produce automobiles increases. What does the supply and demand model predict will happen as a result in the market for automobiles?

Question 4 options:

A)	Equilibrium price and quantity decrease.

B)	Equilibrium price increases, and equilibrium quantity decreases.

C)	Equilibrium price and quantity increase.

D)	Equilibrium price decreases, and equilibrium quantity increases.

Solutions

Expert Solution

Answer (B) - Equilibrium price increases and equilibrium quantity decreases.

Due to increase in the price of the resources used to produce automobiles, the supply curve shift to the left resulting in more price for the same quantity of goods or less quantity of goods at same price. Refer to the figure below for more details. As aggregate demand is fixed, the result is decrease in the equilibrium quantity and increase in the equilibrium prices

Rahul Sunny answered 2 years ago

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