Final Answer:
The demand for tires is expected to 2) decrease.
Step-by-step explanation:
The increase in the price of rubber and the advance in tire production technology will likely lead to a decrease in the demand for tires. When the price of a key input, such as rubber, rises, it raises the production costs for tire manufacturers. This increase in production costs could potentially lead to higher prices for tires in the market. Simultaneously, the advance in tire production technology might result in more efficient and cost-effective manufacturing processes, helping to counterbalance some of the increased costs. However, the net effect is likely to be a decrease in the overall demand for tires, as higher prices may discourage consumers from purchasing them.
Additionally, the price elasticity of demand plays a crucial role in understanding the impact on demand. If the demand for tires is relatively elastic (responsive to price changes), the percentage decrease in quantity demanded may exceed the percentage increase in price, leading to a net decrease in total revenue for tire manufacturers. On the other hand, if demand is inelastic, the decrease in quantity demanded may be proportionally smaller than the increase in price, potentially resulting in higher total revenue. The specific magnitude of these effects would depend on the extent of the price increase and the technological advancements in tire production.