Question

In each of the following.cases (problems 4 through 10), graph the market and provide the factors shifting the S or D 4. The price of steel rose by 25% this year. It is expected that the US auto-market would experience: 5. The price of steel rose by 25% this year. It is expected that the steel market would experience: 6. The market of eggs is in equilibrium. What would be the impact on prices and quantity of eggs if cheaper prefabricated henhouses are available to the farmers?

Answer 1

Question 4

Steel is used as an input in the production of automobiles. Increase in the price of steel will result in an increase in the input cost for automobile producers.

This increase in the cost of production will reduce the profit margin and will compel them to reduce production.

As automobile producers will reduce their production, supply of automobiles in auto-market will decrease.

So, change (increase) in the price of inputs (steel) factor is causing a shift in the supply curve (S).

The supply curve will shift to the left.

Following is the required graph -

Initially, US auto market was in equilibrium at point E. The initial equilibrium price was P and the equilibrium quantity was Q.

Now, supply curve shifts to the left from S to S1.

New equilibrium is attained at point E1. The new equilibrium price was P1 and the new equilibrium quantity is Q1.

Thus,

The US-auto market would experience a rise in equilibrium price and a fall in equilibrium quantity.