What would happen in the market for car tires if there was an increase in the price of rubber used to produce tires and a decrease in the price for cars? Explain the effects on price and quantity.
To start, I will make a graph for the initial state of tire supply and demand. This graph has supply and demand curves in red, with a positive supply curve and a negative demand curve.
If the cost of rubber increases, then the cost for a supplier to make a tire will increase as well. If the supplier wants to make the same amount of profit per tire, this pushes up the price at which tires are sold.
If the cost of a car goes down, more people will purchase cars. If more people have cars, demand for tires will increase.
This means the supply of tires will decrease, and demand for tires will increase. When I move the curves on my graph with new green curves, it shows the equilibrium price of tires increasing, but little change in equilibrium quantity.