5 Changes in the supply of sedans The following calculator s

5. Changes in the supply of sedans The following calculator shows the supply curve for sedans in an imaginary market. For simplicity, assume that all sedans are identical and sell for the same price. Two factors that affect the supply of sedans are the level of technical knowledge-in this case, the speed with which manufacturing robots can fasten bolts, or robot speed-and the wage rate that auto manufacturers must pay their employees. Initially, the graph shows the supply curve when robots can fasten 2,500 bolts per hour and autoworkers earn $25 per hour. Use the graph input tool to help you answer the following questions. You will not be graded on any changes you make to this graph Note: Once you enter a value in a white field, the graph and any corresponding amounts in each grey field will change accordingly. Graph Input Tool Supply for Sedans Price of a Sedan (Thousands of dolars) 20 Supply Quantity Supplied (Sedans per month) 225 30 SUPPLY SHIFTERS 20 Robot Speed (Bolts per hour) Autoworker Wage Dollars per hour) 2500 10 25 o 100 200 300 400 500 000 700 800 900 QUANTITY (Sedans per month)

Solution

Price of Seadan decreases from $25000 to $20000. This could cause the quantity supplied of Seadan to decrease, which is reflected on the graph by movement along the supply curve.

Suppose the workers union accept a pay cut. This cause a leftward shift of the supply curve because the pay cut makes cars more expensive to build.