Suppose an automobile maker producing a certain kind of car suddenly experiences an increase in the demand for the car. In the short run,
A) the demand for steel goes down and the price of steel goes down.
B) the demand for steel goes down but the price of steel stays the same.
C) the demand for steel goes up and the price of steel goes up very quickly.
D) the demand for steel goes up but the steel prices remain the same.

Question

Quizplus · Accepted Answer

In the short run, the auto maker is likely to increase production without being able to significantly increase their acquisition of new resources. This means they will likely need to use existing resources, including steel, more intensively. Therefore, the demand for steel is likely to go up, but the steel prices may not increase immediately due to existing contracts or inventory. In the long run, however, the steel prices may increase as the demand for steel increases.

Suppose an Automobile Maker Producing a Certain Kind of Car