Question

The US government announced a tax on imported leather. At the same time, leather jackets have increased in popularity among teens and young-adult population. Given these events, the final effect in the leather jacket market would be:. And, the final effect on the market of leather would be: 7. 8. OPEC (Organization of the Petroleum Exporting Countries) announced it will decrease oil production by 20 percent in the near future. At the same time, India's income increased from $3,400 per capita to $5,250 per capital last year, prompting a strong demand for cars and gasoline The final effect on the market of cars is:

Answer 1

(7)

Tax on imported leather will increase the price of leather. Since leather is an input to leather jackets, higher price of leather will increase the cost of production of jackets, causing firms to lower supply. Supply curve will shift leftward, increasing price and decreasing quantity. A simultaneous increase in popularity of leather jackets will increase its demand. The demand curve will shift rightward, increasing price and increasing quantity. The net effect is a definite increase in price. But quantity may increase, decrease or remain unchanged based on whether rightward shift in demand curve is higher than, lower than or equal in magnitude to the leftward shift in supply curve.

Since price of leather jacket will increase, firms producing leather jacket will increase their quantity supplied, which will increase the demand for leather (input). In leather market, higher demand will shift the demand curve for leather, rightward, increasing price and increasing quantity.

NOTE: As per Answering Policy, 1st question is answered.