16.00 Normal 0 false false false EN-US X-NONE X-NONE /* Style Definitions */ table.MsoNormalTable {mso-style-name:”Table Normal”; mso-tstyle-rowband-size:0; mso-tstyle-colband-size:0; mso-style-noshow:yes; mso-style-priority:99; mso-style-parent:””; mso-padding-alt:0in 5.4pt 0in 5.4pt; mso-para-margin:0in; mso-pagination:widow-orphan; font-size:10.0pt; font-family:”Times New Roman”,serif;} Consider a city with two auto sellers, a Toyota dealer, and a Honda dealer. Initially,
the distance between the two sellers is three miles. The Toyota dealer wants
to relocate to a site adjacent to the Honda dealer and submits a rezoning request
to the city council. The Honda dealer responds to the rezoning request with the
following statement: “One of the lessons from Econ 100 is that an increase in
supply will decrease price. If the Toyota dealer moves to the site adjacent to my
dealership, the local supply of cars will increase, and I’ll have to cut my prices to
sell the same quantity of cars.” Critically appraise the Honda dealer’s statement.
If the statement is incorrect, what’s wrong with the reasoning? Illustrate your
answer with a graph.
