STUDY SESSION 4, Reading 13, Page 61, Solution for Question substitute, function, aluminum, decrease, price

shootingstar

I think, the explanation is incorrect.
There is only producer’s SUPPLY function in the Question!
The coefficient on the unit price of aluminum (in the SUPPLY function) does NOT implies
whether aluminum is a substitute for steel or not.


The coefficient on the unit price of aluminum (in the SUPPLY function) implies
just a decrease of the variable costs of steel, if the aluminum price rises.

Nishant1

yes it does. the coefficent for the price of aluminum is positive, thus when you add more aluminum into the equation, Qs will increase. as stated in the reading, any coefficient increasing or decreasing other than own price coefficient will shift the supply curve right or left. when Qs increases this means that it will shift to the right, which means supply will increase for steel. thus aluminum is a substitute.

Kapie

I take the right shift of supply curve in this case for granted.
But, schould the answer “whether aluminum is a substitute for steel or not” be on the DEMAND side?
(say demand curve)