Question

Oil-based products are a significant part of the materials used to build sailboats. What is likely to happen in the market for new sailboats and in the market for sails, if the price of oil begins to rise?a. Equilibrium quantity will be larger in both; Equilibrium price will be higher in both.b. Equilibrium quantity will be lower for sailboats and higher for sails; Equilibrium price will be higher for both.c. Equilibrium quantity will be lower for sailboats and sails; Equilibrium price will be higher for sailboats and the change in equilibrium price for sails is ambiguous.d. Equilibrium quantity will be higher for sailboats and lower for sails; Equilibrium price will be higher for sailboats but lower for sails.

Answer 1

Answer:

The answer is: C) Equilibrium quantity will be lower for sailboats and sails; Equilibrium price will be higher for sailboats and the change in equilibrium price for sails is ambiguous.

Explanation:

Generally speaking if the price of a product´s components (plastics and others) rises, then the price of the manufactured product also rises (sailboats). That usually leads to a decrease in the sales of the manufactured product. So the equilibrium price in the market for new sailboats will be higher but the equilibrium quantity will be lower.

Since sails are mostly used in sailboats, if the quantity of sailboats produced decreases due to lower sales, then the demand of sails will also decrease. There is not enough information about the impact of oil prices in the manufacturing of sales, so the change in the price for new sails cannot be determined for this question. The equilibrium price in the market for new sails is ambiguous but the equilibrium quantity will be lower.