Consider the market for automobiles, suppose that the income level of consumers increases and at the...

Consider the market for automobiles, suppose that the income level of consumers increases and at the same time the price of steel (an input to automobile production) falls. If you have no other infrmation, what can you day about the following:

a Change in demand of automobiles

b Change in supply of automobiles

c With the shift in demand and supply curve, how would that change the original equilibrium quantity and price

d Total costs of a firm producing automobiles

e Total revenue of a firm producing automobiles

Expert Solution

a Change in demand of automobiles: increases. Because income has increased, the demand will shift to the right.

b Change in supply of automobiles: increases. Because cost of production has decreases. So supply will shift to the right

c With the shift in demand and supply curve, how would that change the original equilibrium quantity and price: equilibrium quantity will increase while the change in equilibrium price is uncertain and depend on the magnitude of change in demand and supply

d Total costs of a firm producing automobiles: decreases

e Total revenue of a firm producing automobiles: uncertain and depend on the magnitude of change in demand and supply

Rahul Sunny answered 2 years ago

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