Suppose the government imposes new regulations that force tire manufacturers to adopt cleaner production methods that raise the production cost by $10 per tire. Will the new regulations raise the price of tires
An imposition of the government mandate in this case would lead to an increase in the equilibrium price of tires in the market,everything else held constant.
Explanation:
If the government mandates the adoption of cleaner production methods for the tire producers in the market for tires,it will raise the marginal or per unit tire cost by $10 thereby increasing the overall or total production cost/expense of tires for producers or sellers.
An increase in the marginal as well as the total cost of tire production would lead to an overall decrease in the market supply of tires signified by a leftward or upward shift of the market supply curve of tires in the graphical model of tire market.
Now,as a result of a decrease in market supply of tires or the rightward/upward shift of the market supply curve of tires,the equilibrium market price of tires will also consequently increase in the market,holding everything else constant.
