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Explain, using a diagram, what would happen in the market for car tires if at the same time there was an increase in the prices of rubber used in the production of tires and a decrease in the price for cars. Explain the effects on price and quantity.

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In order to make a diagram for this question, refer to the link below.  You will need to have price on the vertical axis and quantity on the horizontal axis.  The demand curve will have a negative slope and the supply curve will have a positive slope.  In the scenario...

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In order to make a diagram for this question, refer to the link below.  You will need to have price on the vertical axis and quantity on the horizontal axis.  The demand curve will have a negative slope and the supply curve will have a positive slope.  In the scenario presented in this question, your demand curve will move to the right when the price of cars drops and your supply curve will move to the left when the price of rubber increases.  These two changes will both cause the price of car tires to rise, but we do not know whether the quantity will rise, fall, or remain unchanged.

When the price of rubber rises, the supply of car tires will drop.  This is because rubber is one of the major inputs for car tires.  When the price of an input rises, the supply of the good falls.  This is represented by a movement of the supply curve to the left.  You can see this in the interactive graph in this link.

When the price of cars falls, the demand for car tires will rise.  When the price of cars drops, people will buy more cars.  This will mean more tires are needed and the demand will rise.  This is shown by a movement of the demand curve to the right as shown in the interactive graph in this link.

Both of these factors will cause prices to rise.  However, we do not know what will happen to the quantity.  If the supply decreases much more than the demand increases, quantity will fall.  If the increase in demand is greater than the drop in supply, quantity will rise.  If they are almost equal, the quantity will not change much, if at all.

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