35. If the demand curve for automobiles remains unchanged, what will be the effect of a decrease in the price of steel on the equilibrium price and quantity of automobiles
Answer: C
A decrease in the equilibrium price and an increase in the equilibrium quantity of automobiles
A decrease in the price of steel, a key input in automobile production, leads to a reduction in production costs for manufacturers. This typically results in an increase in the supply of automobiles, which subsequently lowers the equilibrium price and increases the equilibrium quantity.
A) An increase in the equilibrium price and a decrease in the equilibrium quantity of automobiles
This option is incorrect because a decrease in the price of steel would not lead to an increase in the equilibrium price. Instead, the reduction in production costs would encourage suppliers to produce more automobiles, leading to an increase in quantity.
B) A decrease in both the equilibrium price and quantity of automobiles
This option is incorrect as well, as a decrease in the price of steel would not cause a decrease in the equilibrium quantity. With lower production costs, manufacturers are likely to supply more automobiles, resulting in an increase in quantity.
C) A decrease in the equilibrium price and an increase in the equilibrium quantity of automobiles
This option is correct because the decrease in steel prices lowers production costs, which typically leads to an increase in supply. Consequently, this increase in supply results in a lower equilibrium price and a higher equilibrium quantity of automobiles.
D) An increase in both the equilibrium price and quantity of automobiles
This option is incorrect. A decrease in the price of steel would not cause an increase in the equilibrium price; rather, it would lead to lower prices due to increased supply. Thus, this option does not reflect the expected outcome resulting from the price change.
Conclusion
The correct answer is C, as the decrease in the price of steel effectively reduces production costs, prompting manufacturers to increase supply. This dynamic naturally results in a lower equilibrium price and a higher equilibrium quantity for automobiles, while all other options fail to accurately describe the economic implications of the scenario presented.