Question

Congress passes a law which requires car manufacturers to reduce emissions during the manufacturing process.

(a) Which of the supply shifter variables (SPENT) is affected?

(b) Will supply increase or decrease as a result of the change?

(c) Which way does the supply curve shift (right or left)?

(d) Assuming demand remains the same, what happens to equilibrium price and quantity after the shift? Will they increase or decrease?

Answer 1

a) Variable cost.

because, when congress passes a law which requires car manufacturers to reduced emissions , then the production cost of producing the car will increases as the variable cost is increases to reduce emissions.

b) Supply will decreases .

because, production cost is increases, but the equilbruim price is still the same, profit of the produced reduced .therefore producer reduces the supply .

c) The supply curves shift to the left.

d) The equilbruim price will increases and equilbruim quantity wil decreases .