Question

Suppose the government imposes new regulations that force tire manufacturers to adopt cleaner production methods that raise the production cost by $10 per tire. Will the new regulations raise the price of tires

Answer 1

An imposition of the government mandate in this case would lead to an increase in the equilibrium price of tires in the market,everything else held constant.

Step-by-step explanation:

• If the government mandates the adoption of cleaner production methods for the tire producers in the market for tires,it will raise the marginal or per unit tire cost by $10 thereby increasing the overall or total production cost/expense of tires for producers or sellers.
• An increase in the marginal as well as the total cost of tire production would lead to an overall decrease in the market supply of tires signified by a leftward or upward shift of the market supply curve of tires in the graphical model of tire market.
• Now,as a result of a decrease in market supply of tires or the rightward/upward shift of the market supply curve of tires,the equilibrium market price of tires will also consequently increase in the market,holding everything else constant.