Supply Increases Price

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Homework Week 2

3. What effect will each of the following have on the demand for small automobiles such as the Mini Cooper and Smart car? a. Small automobiles become more fashionable
This will increase the demand in small automobiles

b. The price of large automobiles rises (with the price of small autos remaining the same) The demand will increase

c. Income declines and small autos are an inferior good.
The demand will increase

d. Consumers anticipate that the price of small autos will greatly come down in the near future. The demand will decrease

e. The price of gasoline substantially drops
This statement is unclear. You can’t really tell if the demand for small automobiles will increase or decrease just because the gas prices drop substantially.

6. What effect will each of the following have on the supply of auto tires?

a. A technological advance in the methods of producing tires. Supply will increase

b. A decline in the number of firms in the tire industry.
Supply will decrease

c. An increase in the price of rubber used in the production of tires. Supply will decrease

d. The expectation that the equilibrium price of auto tires will be lower in the future than currently. Supply will increase

e. A decline in the price of large tires used for semi-trucks and earth hauling rigs (with no change in the price of auto tires). Supply will increase

f. The levying of a per-unit tax in each auto tire sold.
Supply will increase

g. The granting of a 50-cent-per-unit subsidy for each auto tire produced. Supply will increase

9. How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in a competitive market; that is, do price and quantity rise, fall or remain unchanged, or are the answers indeterminate because they depend on the magnitudes of the shifts? Use supply and demand diagrams to verify your answers.

a. Supply decreases and demand is constant
Price goes up...
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