a. Since there is a fall in price, there is a movement along the curve. In the steel market as price falls below the market clearing price (Pe) these leads to increase in quantity demanded due to fall in price and a decrease in quantity supplied due to fall in price. Alternatively in the automobile market as price rises above equilibrium, quantity demanded decreases below the market clearing quantity while quantity supplied rises above the market clearing quantity- Qe. Hence if market do not adjust there will be shortage in steel industry (Qd>Qs) and surplus in automobile industry (Qs>Qd). Show
b. As cost of production of steel decreases, then more can be supplied at any given price. Hence supply will shift rightwards from S1 to S2. These decreases equilibrium price from Pe to Pn while equilibrium quantity increases from Qe to Qn. The quantity demanded increases along the demand curve from e to en point. As steel is a input in the automobile industry, a decrease in price of steel, decreases cost of production of automobiles and hence supply for automobile increases from S1 to S2 and so equilibrium price decreases while quantity increases as more is being supplied and demanded. c. An income rises, people can buy more at any given price. An increase in income decreases real price of automobiles hence demand increases from D1 to D2 which causes an increase in equilibrium price and quantity. Due to this increase in demand for automobiles, producers increase their supply along the supply curve from e to en. As they increase their supply, they would require more inputs i.e steel. Hence produers of automobile demand more steel and hence the demand for steel increases in the steel market. This leads to an increase in equilibrium price and quantity in the steel market. d. A fall in expectation of future price of steel induces people to hold back their current demand, This decreases demand and shifts demand curve to the left from D1 to D2 which leads to fall in equilibrium price and quantity. As equilibrium price of steel falls, it implies that the input cost of automobile industry has decreased. This shifts the supply curve to the right from S1 to S2 which leads to decrease in equilbrium price of automobile while an increase in equilibrium quantity of automobile.  What will happen to the market for automobiles if the price of steel falls?Steel is an input for the production of cars, so a fall in the price of steel causes the supply curve for cars to shift right. As the demand curve remains the same, equilibrium price decreases and equilibrium quantity increases.
How would an increase in steel prices affect the supply of car?With the increase in the price of steel, the cost of producing cars would increase. This would lead to the leftward shift of the supply curve.
What would happen to the equilibrium price and quantity of cars if the price of steal rises and the price of gasoline rises?Question: What will happen to the equilibrium price and quantity of new cars if the price of rises, the price of gasoline rises, the price of steel rises, public transportation becomes cheaper and more comfortable, and auto-workers negotiate higher wages? a. The price will fall, and the effect on quantity is ambiguous.
How does the cost of production affect the price?If the cost of any factor of production—labor, raw materials, equipment—decreases, the quantity that producers are willing (and able) to supply at a given price increases. Producers with lower costs will always be able to supply more of a product at a given price than those with higher costs.
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How will a change in the price of steel affect the price of automobiles and quantity of automobiles sold on the market?
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