Oil is an input in the production of gasoline, and gasoline and cars are complements. A decrease in the price of oil will _________ the producer surplus in the market for cars.1 pointincreasefirst increase and then decreasedecreasenot change
Question
Oil is an input in the production of gasoline, and gasoline and cars are complements. A decrease in the price of oil will _________ the producer surplus in the market for cars.1 pointincreasefirst increase and then decreasedecreasenot change
Solution
The answer is "increase". Here's the step-by-step explanation:
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When the price of oil decreases, it becomes cheaper to produce gasoline because oil is an input in the production of gasoline.
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This decrease in production cost will likely lead to an increase in the supply of gasoline, which can cause the price of gasoline to decrease.
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Since gasoline and cars are complements, a decrease in the price of gasoline can increase the demand for cars.
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An increase in demand for cars can lead to an increase in the price of cars, which will increase the producer surplus in the market for cars.
So, a decrease in the price of oil will increase the producer surplus in the market for cars.
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