Question

What happens to the equilibrium price and output of new cars if the price of gasoline increases, the price of steel increases, public transportation becomes cheaper and more convenient, and workers in the auto industry bargain for higher wages?

a. output will increase and the effect on prices is unknown.
b. output will decrease and the impact on prices is unknown.
c. prices will fall and the effect on output is unknown.
d. prices will increase and the effect on output is unknown.

Answer 1

Increases in the price of gasoline and steel, the affordability and convenience of public transportation, and higher wages for auto industry workers would lead to a higher equilibrium price and a lower equilibrium output of new cars.

Step-by-step explanation:

The scenario described in the question has several factors that could affect the equilibrium price and output of new cars.

1. When the price of gasoline increases, it will increase the costs of production for car manufacturers. This will lead to a decrease in the supply of new cars, resulting in a higher equilibrium price and a lower equilibrium output.
2. If the price of steel increases, it will also increase the costs of production for car manufacturers. Similar to the increase in gasoline prices, this will lead to a decrease in the supply of new cars, resulting in a higher equilibrium price and a lower equilibrium output.
3. When public transportation becomes cheaper and more convenient, it will likely reduce the demand for new cars. People may choose to use public transportation instead of buying a new car, which will lead to a decrease in the demand for new cars. This decrease in demand will result in a lower equilibrium price and a lower equilibrium output.
4. If workers in the auto industry bargain for higher wages, it will increase the costs of production for car manufacturers. Similar to the increases in gasoline and steel prices, this will lead to a decrease in the supply of new cars, resulting in a higher equilibrium price and a lower equilibrium output.

In summary, the price of gasoline and steel increasing, public transportation becoming cheaper and more convenient, and auto industry workers bargaining for higher wages will all lead to a higher equilibrium price and a lower equilibrium output of new cars.