What effect will a technological advance in the methods of producing tires have on the supply of auto tires?
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In order to understand this, let us think about what “supply” means in economic terms. The supply for a good or service is the amount of that product that producers will be willing and able to make at each possible sale price. If they come to be willing to make more at the same sale price, we say that supply has gone up. This is what will happen to the supply of tires if a new process is discovered which allows them to be made more cheaply and quickly.
One of the major nonprice determinants of supply is the cost of inputs. This makes sense because if you lower the price of making something and you do not lower the sale price, it becomes more profitable to make and sell that item. Therefore, you will make more of them.
If a new process makes it possible to make tires more cheaply, producers will want to make more of them at any given price. They will want to make more because they can now get more profit. Therefore, the discovery of a new process will cause the supply of tires to increase.
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