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

Solutions

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 1 year ago

Next > < Previous

Related Solutions

Suppose current income increases for consumers, but there is no change in expected future income. Describe...

Suppose current income increases for consumers, but there is no change in expected future income. Describe and illustrate the impact on current consumption, future consumption, and savings. If any of these effects are indeterminate, explain why.

Consider the market for shoes in the following scenario. Suppose the cost of socks increases, use...

Consider the market for shoes in the following scenario. Suppose the cost of socks increases, use comparative statics to show what will happen to price and quantity in the shoe market. Does your result help explain why shoe companies often produce socks as well? Explain.

Consider the market of automobiles in BC is initially in equilibrium. Then for each of the...

Consider the market of automobiles in BC is initially in equilibrium. Then for each of the market shock listed below, use appropriate supply and demand curve to depict the effect of each shock on the equilibrium price and quantity. An increase in the price of automobiles. Disposable income in BC increased due to government policy that aimed at uplifting the living standard of people in BC Technological advanced enabling more efficient production of cars. A combined effect of an increase...

Consider the market for automobiles in the U.S. Explain how each of the following cases will...

Consider the market for automobiles in the U.S. Explain how each of the following cases will affect the equilibrium quantity and equilibrium price of automobiles the U.S. auto market. a. The stock market boomed and automobile is a normal good for a typical U.S. consumer b. Auto insurance rates increases and wages of auto workers increases as well. c. More and safer interstate highways are built and Ford exit the U.S. market to serve only European and African markets. d....

Suppose that the number of sellers in a market increases and an increase in price of...

Suppose that the number of sellers in a market increases and an increase in price of a substitute good occurs. What would we expect to happen in the market?

Suppose the labor force increases in size due to a large level of immigration. At the...

Suppose the labor force increases in size due to a large level of immigration. At the same time real interest rates in a regular economy rise. What will happen in the economy? 1) Equilibrium price in the economy will rise, equilibrium quantity is ambiguous. 2) Equilibrium price in the economy will fall, equilibrium quantity is ambiguous. 3) Equilibrium price in the economy is ambiguous, equilibrium quantity will rise. 4) Equilibrium price in the economy is ambiguous, equilibrium quantity will fall.

There is a market of candy. Consumers allocate their income only on candy and milk. The...

There is a market of candy. Consumers allocate their income only on candy and milk. The consumers have diminishing marginal utility for both products. The candy market is perfectly competitive. The candy companies use labor and capital (raw materials) to produce candy. The market is in a state of long term equilibrium. 1. Consumers experience an income increase. Illustrate with GRAPHS how the income increase affect the market short term equilibrium a. How the income increase affects demand of candy...

Consider the market for white athletic socks, which consumers consider to be identical products. If the...

Consider the market for white athletic socks, which consumers consider to be identical products. If the demand is very elastic and the supply is very inelastic, how would the burden of a new tax on athletic socks be shared between consumers and producers? What if the situation were reversed – a very inelastic demand and a very elastic supply? How would that change the way consumers and producers share the burden of the new tax? Justify your answer.

Suppose income elasticity of demand is equal to 2.0 a. If income increases by 10%, Quantity...

Suppose income elasticity of demand is equal to 2.0 a. If income increases by 10%, Quantity Demanded will ____ by ___% b. The demand is income ____ because the coefficient is _____1. c. Since the income elasticity is ____, buyers view this good as a(n) ____ good. d. As income increases, demand for this good will ___; as income increases, the demand curve will shift to the ____.

Suppose that Edison and Hilary are the only consumers of shoes in a particular market. The...

Suppose that Edison and Hilary are the only consumers of shoes in a particular market. The following table shows their annual demand schedules: Price Edison’s Quantity Demanded Hilary’s Quantity Demanded (Dollars per pair) (Pairs) (Pairs) 10 24 56 20 12 40 30 8 24 40 4 12 50 0 4 On the following graph, plot Edison’s demand for shoes using the green points (triangle symbol). Next, plot Hilary’s demand for shoes using the purple points (diamond symbol). Finally, plot the...

Subjects