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Effect of market shocks on equilibrium price and quantity

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According to an article in the Wall street Journal, during 2006, the demand for full-size pickup trucks declined as a result of rising gas prices and a decline in housing construction (construction firms are an important part of the market for full-size pickup trucks). At the same time, Toyota began production of trucks at a new factory in Texas.

Briefly discuss whether this problem provides enough information to determine whether the equilibrium price and quantity of trucks increased or decreased.

If so, what would have happened to the equilibrium price and quantity of pick-up trucks?

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Solution Summary

This solution shows how to determine if there is enough information to determine whether the equilibrium price and quantity of pickup trucks would increase or decrease in response to two market shocks: one affecting demand and the other affecting supply.

Solution Preview

The problem only provides enough information to determine that the equilibrium price decreased. The equilibrium quantity could have increased, decreased, or stayed the same.

The article says that the demand for trucks decreased. If supply remained constant, ...

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