Question

Soon after America’s declaration of war on Japan the British colony of Malaya was overrun by advancing Japanese military forces. Malaya was the primary source of natural rubber to the US automobile industry before the war. At the same time demand for military vehicles has surged in response to massive government orders. Based on these facts, how would you predict the equilibrium price and quantity of vehicles to change after the fall of Malaya?

Answer 1

The prices would surge high and thee quantity available would go down massively.

Explanation:

Malaya was very strategically important as a primary source for rubber for US automobile industry, which was one of the biggest in the world.

When Malaya fell to Japan they would obviously cut off the rubber supply to US that went freely under the British. This would mean that US would be without a primary source for their manufacture.

Thus the prices would surge high and the automobile industry will take a massive hit.