Question

Over time, a continual decrease in autoworkers' wages leads to an increase in the supply of trucks. During this same time, drivers start to prefer compact cars over trucks, leading to a decrease in the demand for trucks. Which of the statements most accurately describes what happens to the equilibrium price and quantity of trucks? The equilibrium price will increase and the equilibrium quantity will increase. The equilibrium price will decrease and the equilibrium quantity will decrease. The equilibrium price will decrease and it is unclear how the equilibrium quantity will change. The equilibrium quantity will decrease and it is unclear how the equilibrium price will change.

Answer 1

Answer: statement 4

Explanation: The correct effect is explained by the statement " the equilibrium price will decrease and it is unclear how the equilibrium quantity will change.

Lower wages and change in drivers preference will both result in decrease in prices. But in case of quantity change the increase or decrease depends on which factor has a dominant effect as increase in supply because of lower wages will increase the quantity but change in preference of drivers will decrease the quantity.

Answer 2

Answer: The equilibrium price will decrease and it is unclear how the equilibrium quantity will change.

Explanation:

Increase in supply of trucks ⇒ Due to lower wages ⇒ Increases the quantity supplied ⇒ Decreases price in the market

The sudden change in preference of divers due to the market force of supply and demand ⇒ Decreases demand for trucks

∴It decreases price and quantity of trucks in the new equilibrium.

∴ Both effects will decrease the prices and quantities, this effect depend on the market forces of supply and demand.