Question

Read the statement below carefully, and decide whether it is true or false. And then EXPLAIN your answer (whether “true “ or “false”).

If the cost of steel increases, then the supply of cars will shift and this shift would cause a shortage of cars to open up at the old equilibrium price (i.e., the price before the supply shifted).

Answer 1

False:

If the cost of steel increases, then the supply of cars will shift and this shift but this would not cause a shortage of cars to open up at the old equilibrium price.

If the cost of steel increases, then the supply curve of cars would shift to the left because the suppliers can’t afford high priced steel to make cars, forcing the suppliers to produce less.

The demand curve would remain the same. The equilibrium price would increase due to the fact that the suppliers want more money because they are losing money when buying the expensive steel. The quantity of cars would decrease because the suppliers don’t want to buy expensive steel to make and sell a large amount of cars.

So the statement is false because shortage of cars does not open up at the old equilibrium price while the new equilibrium price is higher than the price before the supply shifted.