Consider the market for automobiles, and draw representative supply and demand curves. a. Suppose that the price
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a. Suppose that the price of gasoline rises, and at the same time, the price of steel (an input to automobile production) falls. Show this on your graph. If you have no other information, what can you say about the change in equilibrium price and quantity?
b. Now suppose that you have the additional information that the rise in gasoline prices has been relatively large, while the reduction in steel costs has been relatively small. How would this change your answer to (a)?
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a The increase in the price of gasoline causes the demand for automobile...View the full answer
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