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Answer :
Final answer:
Rising labor costs in the automobile industry lead to an increase in car prices and a decrease in the quantity of cars sold. Producers supply fewer cars at higher prices, reflecting greater production expenses. This shift impacts both supply and consumer purchasing behavior.
Explanation:
Impact of Rising Labor Costs in the Automobile Industry
When labor costs rise in the automobile industry, the overall cost of production for car manufacturers increases. This can lead to a significant impact on the market equilibrium for cars, specifically regarding prices and the quantity sold.
As manufacturers face higher production costs, they will supply a lower quantity of cars at any given price. This is visually represented as a leftward shift in the supply curve, indicating that at the same price point, fewer cars are being offered for sale. For example, if previously manufacturers could supply 18 million cars at a price of $20,000, they might now only supply 16.5 million cars after labor costs increase.
- Price: With a decrease in supply, the price of cars is likely to increase because consumers will compete for a limited number of vehicles available in the market.
- Quantity Sold: Correspondingly, the quantity sold will decrease as fewer cars are offered for sale and potential buyers may decide to wait or hold off on their purchases due to higher prices.
In summary, if labor costs rise, we can expect the price of cars to increase and the quantity of cars sold to decrease.
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