Question

6

What effect will each of the following have on the supply of auto tires (keeping all else constant)? a. A technological advance in the methods of producing tires (Click to select) b. A decline in the number of firms in the tire industry. Click chane c. An increase in the prices of rubber used in the production of tires( (Click toselect)3 . d. The expectation that the equilibrium price of auto tires will be lower in the future than currently:(Click to select) e. A decline in the price of large tires used for semi trucks and earth-hauling rigs, a substitute in production (with no change in the Decrease price of auto tires):(Click to select) f. The levying of a per-unit tax on each auto tire sold:(Click to select) g. The granting of a 50-cent-per-unit subsidy for each auto tire produced:(Cick to select)

Answer 1

law of supply states that, all the other factors being constant, as the price of the good increases, quantity of good and services also increases. Supply of auto tires depends upon the price of the raw materials, technology, future expectations, taxes etc. Consider the following table: Scenario A technological advance in the methods of Increase because advancement in producing tires A decline in the number of firms in the tire Decrease as there are fewer firms industry,. An increase in the prices of rubber used inDecrease because cost of raw material the production of tires The expectation that the equilibrium price Increases, because the producer will sell as of auto tires will be lower in the future than|much as possible at current prices currently A decline in the price of large tires used Increases, as there is no change in the for semi-trucks and earth-hauling rigs, a prices of auto tires substitute in production The levying of a per-unit tax on each autoDecrease because cost of production tire sold. The granting of a 50-cent-per-unit subsidy Decrease cost of production decreases. for each auto tire produced Increase/ decrease technology helps in faster production. producing tires increases increases