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Answer :
If labor costs rise in the automobile industry, it is likely to have an impact on car prices and the quantity of cars sold. Here are the possible outcomes:
Car Prices Increase: When labor costs rise, it often leads to higher production costs for automakers. To compensate for these increased expenses, car manufacturers may choose to pass on some or all of the additional costs to consumers by raising car prices. As a result, car prices are likely to increase.
Quantity of Cars Sold Decreases: Higher car prices can affect consumer demand for automobiles. When the price of cars goes up, some potential buyers may be discouraged from purchasing a vehicle, especially if the price increase is significant. Consequently, the quantity of cars sold is expected to decrease as demand reduces.
It's important to note that the extent of the impact will depend on various factors such as the magnitude of the labor cost increase, the elasticity of demand for cars, and the competitiveness of the automotive market. Other factors like consumer preferences, income levels, and availability of substitutes can also influence the overall outcome.
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