Question

If the market for electric cars is close to perfect competition, and there is BOTH a technological breakthrough which allows firms to produce batteries more cheaply and an increase in the demand for electric cars then we know:

Answer 1

In a market close to perfect competition with a technological breakthrough and an increase in demand for electric cars, we can expect lower prices, increased supply, and increased competition, leading to economic efficiency.

Step-by-step explanation:

In a market for electric cars that is close to perfect competition and experiences both a technological breakthrough allowing firms to produce batteries more cheaply and an increase in demand for electric cars, we can expect the following:

1. Lower prices for electric cars: The technological breakthrough that allows firms to produce batteries more cheaply will result in a decrease in production costs. As a result, firms can pass on the cost savings to consumers in the form of lower prices for electric cars.
2. Increased supply of electric cars: With lower production costs, firms can increase their supply of electric cars. This means there will be more electric cars available in the market to meet the increased demand.
3. Increased competition: As more firms enter the market to take advantage of the lower production costs and increased demand, there will be increased competition. This can further drive down prices and lead to better quality as firms compete for customers.
4. Economic efficiency: Perfect competition and the resulting lower prices and increased supply can lead to economic efficiency. Consumers are able to purchase electric cars at a lower cost, and resources are allocated more efficiently in the market.