Figure 13.2. The U.S. Market for Imported Toyotas

-In Figure 13.2, D represents the U.S.demand curve for Toyotas and MC₀ represents the marginal cost of producing Toyotas.Assume that Toyota behaves like a monopolist in the U.S.market.A shift in the marginal cost curve from MC₀ to MC₂ leads to

Question

Figure 13.2. The U.S. Market for Imported Toyotas

-In Figure 13.2, D represents the U.S.demand curve for Toyotas and MC₀ represents the marginal cost of producing Toyotas.Assume that Toyota behaves like a monopolist in the U.S.market.A shift in the marginal cost curve from MC₀ to MC₂ leads to

Quizplus · Accepted Answer

The shift in the marginal cost curve would lead to a change in the price that Toyota charges for its cars in the U.S. market. However, the degree of pass-through (the extent to which the change in Toyota's costs is reflected in the price charged to consumers) depends on the elasticity of demand for Toyotas. If demand is relatively elastic, meaning consumers are very sensitive to changes in price, then Toyota will have to absorb some of the higher costs and not fully pass them on to consumers. This would result in a partial pass-through of the depreciation of the dollar.

Figure 13.2. the U.S. Market for Imported Toyotas