Question

An increase in the price of rubber coincides with an advance in the technology of tire production. As a result of these two events,a. the demand for tires decreases and the supply of tires increases.b. the demand for tires is unaffected and the supply of tires decreases.c. the demand for tires is unaffected and the supply of tires increases.d. None of the above is necessarily correct. What should be the demand and supply?

Answer 1

d

the demand for tires is unaffected and effect on the supply of tires could increase, decrease, or stay the same.

Step-by-step explanation:

An increase in the price of rubber would lead to an increase in the cost of producing tires. Rubber is an input required in the production of tires.

As a result of the increase in the cost of rubber, the supply of rubber would decrease. This would lead to a leftward shift of the supply curve. Equilibrium price would increase and quantity would decrease

As a result of the advance in technology, there would be an increase in the supply of tires. As a result, the supply curve shifts outward. Equilibrium price would decrease and quantity would increase

Taking these wo effects together, the demand for tires is unaffected and effect on the supply of tire is indeterminate