Suppose the price of oil has recently increased, making it more expensive to manufacture ride-on lawn mowers. This oil price increase also makes it more expensive to run a ride-on mower. What is likely to happen to the market for ride-on lawn mowers as a result in the changing price of oil?
A) Supply and demand will increase, increasing equilibrium quantity and having an indeterminate effect on price.
B) Supply and demand will decrease, decreasing equilibrium quantity and having an indeterminate effect on price.
C) Supply and demand will increase, increasing equilibrium price and having an indeterminate effect on quantity.
D) Supply and demand will decrease, increasing equilibrium price and having an indeterminate effect on quantity.

Question

Quizplus · Accepted Answer

The increase in oil prices raises production costs, leading to a decrease in supply. Running costs also increase, reducing demand. Both effects lead to a lower equilibrium quantity. The price effect is indeterminate without knowing the relative shifts in supply and demand.

Suppose the Price of Oil Has Recently Increased, Making It