A safety report is released that contends that sport utility vehicles are more prone to roll over during crashes than was previously thought. At the same time, the price of steel (used to produce motor vehicles) increases. The net effect of these two incidents on the market for sport utility vehicles is a(n):
A)decrease in price and an increase in equilibrium quantity.
B)decrease in price and a decrease in equilibrium quantity.
C)increase in price and a decrease in equilibrium quantity.
D)indeterminate change in price and a decrease in equilibrium quantity.

Question

A safety report is released that contends that sport utility vehicles are more prone to roll over during crashes than was previously thought. At the same time, the price of steel (used to produce motor vehicles) increases. The net effect of these two incidents on the market for sport utility vehicles is a(n):
A)​decrease in price and an increase in equilibrium quantity.
B)​decrease in price and a decrease in equilibrium quantity.
C)​increase in price and a decrease in equilibrium quantity.
D)​indeterminate change in price and a decrease in equilibrium quantity.

Quizplus · Accepted Answer

The safety report would likely decrease demand (due to concerns about rollovers), while the increase in steel prices would likely decrease supply (as it becomes more expensive to produce vehicles). Both effects would lead to a decrease in equilibrium quantity, but the effect on price is indeterminate without knowing the relative magnitude of the shifts in supply and demand.

A Safety Report Is Released That Contends That Sport Utility