Final answer:
The rising price of steel can lead to a lower supply of cars, demonstrated by a leftward shift of the supply curve. Offering discounts on car parts when manufacturing costs are increasing can strain profits and depend on factors like cost absorption capacity and competition.
Step-by-step explanation:
When considering the implications of offering discounts on car parts given the rising price of steel, it is essential to understand how input costs affect supply. If the price of steel increases, the cost of manufacturing cars also rises, leading car manufacturers to supply a lower quantity of cars at any given price.
This change can be represented by a leftward shift of the supply curve. For instance, if a car was priced at $20,000, the quantity supplied might decrease from 18 million to 16.5 million units, as indicated by the shift from supply curve So to supply curve S1 at point L.
Offering discounts on car parts under these circumstances can be challenging for manufacturers. As their margins are squeezed by the higher steel prices, reducing prices further through discounts could potentially erode profits even more. Therefore, the decision to offer discounts will depend on various factors, including the ability to absorb the cost increases, the competitive landscape, and the pricing strategy that aligns with the manufacturer's overall business objectives.