Comparative Statics. Demand and supply conditions in the steel market are import

Question

Comparative Statics. Demand and supply conditions in the steel market are important concerns to business and government decision makers. Some of the following factors have the potential to influence the demand or quantity demanded of raw steel. Influences on the supply or quantity supplied may also result. Holding all else equal, describe these influences as increasing or decreasing, and indicate the direction of the resulting movement along or shift in the relevant curve(s).


A. Increases in the U. S. Department of Transportation's mileage requirements for car fleets.
B. Public outcry at the poor condition of the nation's interstate freeway system.
C. New alloys that increase steel's tensile strength are created.
D. A severe recession.
E. A new technology reduces the production cost of raw steel by one-third.

Explanation / Answer

Demand is a function of price, income, price of related goods, and N. Changes in price makes the quantity demanded to move along the demand curve. Changes in any other parameter will shift the dmand curve. Supply is a function of price, price of raw materials, technology, taxes and subsidies. Changes in price makes the supply to move along the supply curve. But changes in the other factors will shift the supply curve towards its right or left. A. Increases in the U. S. Department of Transportation's mileage requirements for car fleets.
Increase in mileage requirements acts as a trigger to the Auto manufacturers for starting hybrid car plants, this makes the demand curve of steel to shift towards its right.
B. Public outcry at the poor condition of the nation's interstate freeway system. For building a new free way system excess steel is required, which shit the demand curve of steel towards its right.
C. New alloys that increase steel's tensile strength are created. Due to this new alloy, tensile strength of steel will increase creating new markets for steel. This makes the demand for steel to shift towards its right.
D. A severe recession. A severe recesion reduces the aggregate demand in the economy, shifting the demadn for steel towards its left. Due to lack of demand for steel, the steel manufacturers will have reduce its production and downsize its labor force, this makes the supply curve shift towards it left, reducing supply.
E. A new technology reduces the production cost of raw steel by one-third. Lower input costs will make the supply curve to shft towards its right. Increasing supply.

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