SupplyProducerPriceExpectations

by jwietl
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SupplyProducerPriceExpectations

I’m ______________________ speaking to you from Joliet Central High School, room 377 for the Institute for the Teaching of Economics in All Subject Areas. You are listening to:The Institute for the Teaching of Economics in All Subject AreasVolume Three, Issue FourDeterminants of Supply/Change in Producer Price ExpectationsEarlier we spoke of a revolution in the automobile industry lead by Henry Ford. The 1973 Oil Embargo caused a spike in gas prices, which lead to another revolution in the manufacturing of automobiles. Seeking relief from skyrocketing fuel prices, consumers began to look for alternatives to the gas guzzling autos being manufactured by domestic producers. Demand for the energy efficient import from the Toyota Corporation increased, and became a fire bell in the night for U.S. automakers. Suddenly, engineers in the domestic auto industry hustled to design an engine with only four cylinders instead of eight or twelve to rival those being produced in Japan by Toyota. As the result of increasing energy prices, auto producers in the U.S. anticipated selling fewer luxury cars and more economy cars. That is, as a result of the 1973 Oil Embargo, U.S. auto producers forecast falling prices for luxury cars and rising prices for economy, or compact cars. According to economic theory, a decrease in producer price expectations will cause a decrease in supply. This causes the supply curve to shift up and to the left. When the supply curve shifts up and to the left, price increases and quantity supplied decreases.


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