Question

Suppose an increase in the price of rubber coincides with an advance in the technology of tire production. As a result of these two events, the demand for tires

Answer 1

Answer: None of the above

Explanation: An increase in the price of rubber coincides with an advance in the technology of tire production. Advancement in technology of tire production means an increase in the supply of tire. But at the same time an increase in the price of rubber will lead to an increase in the input cost of tire production. This will lead to a fall in the supply of tire. Thus, the net effect on supply of tire will depend on the magnitude of these two changes.

However, the two events will have no effect on the demand for tire.

Thus, none of the above is the correct answer.