What effect will each of the following have on the supply of auto tires?
Supply is a schedule or curve showing the amounts of a product
that producers are willing to offer in the market at each possible
price during a specific period. The law of supply states that other
things equal, producers will offer more of a product at a high price
than at a low price. Thus, the relationship between price and quantity supplied is positive or direct, and supply is graphed as an
upsloping curve.
The market supply curve is the horizontal summation of the
supply curves of the individual producers of the product.
Changes in one or more of the determinants of supply (resource prices, production techniques, taxes or subsidies, the prices
of other goods, producer expectations, or the number of sellers in
the market) shift the supply curve of a product. A shift to the right
is an increase in supply; a shift to the left is a decrease in supply. In
contrast, a change in the price of the product being considered
causes a change in the quantity supplied, which is shown as a
movement from one point to another point on a fixed supply curve.
- A technological advance in the methods of producing tires.
- A decline in the number of firms in the tire industry.
- An increase in the prices of rubber used in the production of tires.
A technological advance reduces production cost, so firms increase production. As a result, supply increases.
[Higher supply shifts supply curve to right, decreasing price and increasing quantity]
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