Question

Variables typically included in a multivariate supply function (other than the price and quantity of the item the supply function represents) are prices of other goods that use similar input resources for production, expectations, the number of suppliers, techniques of production, taxes and subsidies, and prices of input resources, weather.  Please answer the following questions about the affect changes in other variables might have on the supply of the item.  These changes will either cause supply to increase (shift right) or decrease (shift left).  Use either word as applicable, for the short answer.

1. It is rumored that refiners are taxed 5.4 cents/gallon more than they are taxed for gas mixed with Ethanol.  The tax is used to subsidize the growth of more corn (from which Ethanol is made).  The result is an ____________ in the supply of Ethanol.

2. E-book readers can now be bought for about $100.  Digital books are considerably cheaper than printed versions.   Predictably then the supply of e-books will _____________.

3. T. Boone Pickens spent millions of his own money advertising the benefits of “Cleaner American- Produced Natural Gas” as an alternative vehicle fuel.  Advertising seeks to increase the demand for an item.  Suppose instead he had spent his millions to help service stations install natural gas fueling equipment (pumps ??).  This would be an effort to _____________ the supply of readily available natural gas fueling facilities

4. Think of highways as a resource used in the production of highway transportation.  Thus building more and better highways is likely to _______________ the supply of vehicles using them.

5. A problem getting the public to buy automobiles equipped to use both gasoline and natural gas as fuel is the cost of adding natural gas capability to the vehicles.  Suppose a small amount of tax was added to the cost of a gallon of gas (maybe one cent, for example).  This could be used to encourage manufacturers to install natural gas using capability in vehicles, thus ______________ the supply of these vehicles on the road.

Answer 1

1. DECREASE, because there is an increase in the cost of production.

2. INCREASE, because there is an increase in demand in the market and costs are very competitive.

3. INCREASE, because the machine runs o the fuel and fuel will be in demand by the stations in the future.

4. INCREASE, because there is an increase in the facility for transport vehicles.

5. INCREASE, because there is a very minimal rise in tax but this tax/amount will be used to make natural gas using vehicles which in lead increases the supply in near future.

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