Question

Consider the market for ride-on lawn mowers and the recent increases in the price of oil. The recent increase in the price of oil makes it more expensive to manufacture ride-on lawn mowers. An increase in the price of oil also makes it more expensive to run a ride-on mower. If the price of oil increases, the demand for ride-on mowers will ______ and the supply will _______.

Answer 1

The correct answer is: decrease; decrease.

Step-by-step explanation:

An increase in the price of oil has increased the cost of producing ride-on lawnmowers. As the cost of production increases, at the same level of the total cost, the firm will be able to produce less quantity of mowers. This will cause a decline in the supply of mowers. The supply curve will move to the left.

At the same time, the increase in oil price will make it expensive to use mowers. This will cause a decline in demand. This will cause the demand curve to move to the left.

The equilibrium quantity will decline, the change in price will depend upon the extent of change in demand and supply.