Question

Sketch out a supply and demand diagram for snow tires and explain (comparative statics) what is likely to happen to the price and sales of snow tires if tire manufacturers were able to produce an all-weather tire that was equally as good as a snow tire for all but the most severe conditions.

Answer 1

Since the snow tier can be used only in the snow weather condition and so the equilibrium price and quantity of snow tier is P and Q.

But if the tier manufacturer is able to make all weather condition tier which can be used in all weather, then the quantity demand of snow tier decreases because all weather tier is better than snow tier. Hence the demand of snow tier decreases and so the demand curve of snow shift leftward from D to D1. Hence the new quantity demand(sales) of snow tier decreases from Q to Q1 and price from P decreases from P to P1.

All this has been shown in the below diagram.