A safety report is released that contends that sport utility vehicles are less prone to roll over during crashes than was previously thought. At the same time, the price of steel (used to produce motor vehicles) decreases. The net effect of these two incidents on the market for sport utility vehicles is a(n):
A)indeterminate change in price and an increase in equilibrium quantity.
B)indeterminate change in price and a decrease in equilibrium quantity.
C)decrease in price and an increase in equilibrium quantity.
D)increase in price and an increase in equilibrium quantity.

Question

A safety report is released that contends that sport utility vehicles are less prone to roll over during crashes than was previously thought. At the same time, the price of steel (used to produce motor vehicles) decreases. The net effect of these two incidents on the market for sport utility vehicles is a(n):
A)​indeterminate change in price and an increase in equilibrium quantity.
B)​indeterminate change in price and a decrease in equilibrium quantity.
C)​decrease in price and an increase in equilibrium quantity.
D)​increase in price and an increase in equilibrium quantity.

Quizplus · Accepted Answer

The safety report makes sport utility vehicles more attractive, increasing demand, while the decrease in steel prices reduces production costs, increasing supply. Both effects lead to an increase in equilibrium quantity, but the price change is indeterminate because the effects on price from increased demand (upward pressure) and increased supply (downward pressure) counteract each other.

A Safety Report Is Released That Contends That Sport Utility