eco.docx - Claire Lyu ECO 201 Professor Granderson Writing...

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Claire Lyu ECO 201 Professor Granderson 9/27/16 Writing Assignment There are five productions involved in this question, which include vanadium (a metal used to produce steel); steel and glass windshields are used to produce cars; GPS is the compliment of car. Based on this, we learned that vanadium is the input of steel, steel and windshields are the inputs of cars. As the subsidy were given to firms, the supply of vanadium increases, so the price of vanadium goes down. According to the substitution effect, people seek the alternative goods when the price of the good increases, the reduction in price would lead to an increase in the quantity demanded. As the price of vanadium falls, vanadium is less expensive to other similar metals, the car companies would more likely to use vanadium instead of using other alternative metals to produce steels. So in this case, the quantity demanded of the vanadium increases, so does the quantity supplied increase as well. The income effect tells us that the price change effects consumer income. In this case, the price of vanadium falls, people’s real income rises.
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