Identify the effect of a reduction in the price of steel on the equilibrium price and quantity of automobiles,for a given demand curve.

Question

Quizplus · Accepted Answer

A reduction in the price of steel, a key input in automobile production, would lead to a decrease in production costs for automobile manufacturers. This would result in a rightward shift of the supply curve for automobiles, as producers would be willing and able to supply more automobiles at each price level. Given the same demand curve, this would lead to a decrease in equilibrium price and an increase in equilibrium quantity.

Identify the Effect of a Reduction in the Price of Steel