Answer to Question #302973 in Microeconomics for saba

Question

What effect will each of the following have on the supply of auto tires?

a. A technological advance in the methods of producing tires.

b. A decline in the number of firms in the tire industry.

c. An increase in the prices of rubber used in the production of tires.

d. The expectation that the equilibrium price of auto tires will be lower in the future than currently.

e. A decline in the price of the large tires used for semi trucks and earth-hauling rigs (with no change in the price of auto tires).

f. The levying of a per-unit tax on each auto tire sold.

g. The granting of a 50-cent-per-unit subsidy for each auto tire produced.

Answer 1

ANSWER

a. A technological advance in the methods of producing tires will reduce production cost leading to an increase in profits and hence supply increases.

b. A decline in the number of firms in the tire industry will cause a decline in supply of auto tires.

c. An increase in the prices of rubber used in the production of tires will lead to an increase in production cost thus decreasing supply.

d. The expectation that the equilibrium price of auto tires will be lower in the future than currently will make the supply to decrease.

e. A decline in the price of the large tires used for semi trucks and earth-hauling rigs (with no change in the price of auto tires) will lead to a decline in supply.

f. The levying of a per-unit tax on each auto tire sold reduces after tax profits thus reducing supply.

g. The granting of a 50-cent-per-unit subsidy for each auto tire produced will motivate producers to make more auto tires hence increasing supply.