Suppose that the price of rubber, an input in production of tires, goes up. How will this affect the market for tires in terms of equilibrium quantity and price?

Equilibrium quantity is the quantity that exists and then is exchanged when the market is in balance, that is, the market is not holding storage or surplus. Equilibrium quantity, once achieved does not change until an external force intervenes.

Going by Baye, “equilibrium price in a competitive market is determined by the interaction of all buyers and sellers in the market. The concept of market supply and demand made this notion of interaction more precise. It is the price that equates quantity demanded with quantity supplied.” (2014). And it can also be called market clearing price.

Graphically, equilibrium is where the demand and supply curves intersect.

There exists a direct relationship between price of a product and its supply, meaning the producer has a greater incentive to supply an item if the price is higher; but there is an inverse relationship between the price of product and quantity demanded.

Note: A change in one of the variables (shifters) held constant in any model of demand and supply will create a change in demand or supply. A shift in a demand or supply curve changes the equilibrium price and equilibrium quantity for a good or service ("Principles of MacroEconomics" 2014). 

“To predict consumer behavior, economists use well-defined techniques evaluating the sensitivity of consumers to changes in price. Such techniques, pioneered by the great British economist Alfred Marshall in the early part of this century, are the foundations of microeconomics. The most commonly used measure of consumers' sensitivity to price is known as price elasticity of demand." Hundreds of research have been done on long-run and short-run price elasticity of demand (Anderson et al, n.d.). Low Price Elasticity of Demand <1, High Price Elasticity of Demand >1.

Quoting Pettinger, “Demand tends to be more price inelastic in the short-run as consumers don’t have time to find alternatives. In the long-run, consumers become more aware of alternatives” (2017).

Demand still affects the amount supplied no matter the elasticity of its price, possible supply shifters that could affect supply, includes an increase in the prices of inputs used in production. When prices of factors of production change, quantity supplied will change, that is a movement along the supply curve. Though there are factors other than the price-changes-of-material-inputs-used-in-production that causes the supply curve to shift, examples of those include: changes in costs of other aspects of production, numbers of sellers (new entrants and existing competitors), changes and/or problems in technology leading to decline in production, expectations of the future, an increase in the returns available from alternative uses of these inputs etcetera.

In other instances, these factors mentioned above do not translate to a reduction in supply in which case such products are inelastic in nature. An example is fuel (petrol), if crude oil prices go up, it will not resort to a reduction in supply, even if price of fuel goes up as it recently did by some cents in San Diego.

In the case of tires, they are 0.9 on the short run and 1.2 on the long run price elasticity of demand, hence it has approximately unitary elasticity. (Anderson et al). The demand for tire is unitarily elastic if a change in the price of tire causes an equal change in quantity of tires demanded, meaning the elasticity coefficient of tire approximately equal to 1. 

Hence as the quantity moves or changes, there is an equal and corresponding movement of the price, moving the equilibrium quantity and price simultaneously.

Reference

Anderson, P. L., McLellan, M.D., Overton, J.P., & Wolfram, G.L. (n.d.). Price Elasticity Of Demand. Harvard Paper. Retrieved fromhttps://scholar.harvard.edu/files/alada/files/price_elasticity_of_demand_handout.pdf

Baye, M. R. (2010). Market Forces: Demand and Supply. Managerial Economics and Business Strategy. McGraw-Hill Irwin. 7th Ed. Pp 52-57

Chan, F. (2016). Determinants of Supply. Retrieved fromhttps://staffwww.fullcoll.edu/fchan/Micro/1determinants_of_supply.htm

Pettinger, T. (2017). Price Elasticity of Demand – Short and Long Run. Retrieved fromhttps://www.economicshelp.org/blog/435/concepts/price-elasticity-of-demand-short-and-long-run/

Principles of MacroEconomics (2014). Retrieved from http://open.lib.umn.edu/macroeconomics/chapter/3-3-demand-supply-and-equilibrium/