Final answer:
When a new law mandating an increase in required levels of automobile insurance is implemented, it will affect the equilibrium price and equilibrium quantity in the market for new automobiles. The increase in required levels of automobile insurance will lead to a decrease in demand for new automobiles, causing the equilibrium price to rise and the equilibrium quantity to fall.
Step-by-step explanation:
When a new law mandating an increase in required levels of automobile insurance is implemented, it will affect the equilibrium price and equilibrium quantity in the market for new automobiles. The correct answer choice is b. Equilibrium price will rise; equilibrium quantity will fall.
The increase in required levels of automobile insurance will increase the cost of owning a car. This will lead to a decrease in demand for new automobiles as some consumers may not be able to afford the higher insurance costs. As a result, the equilibrium price will rise as there is less demand for new cars, and the equilibrium quantity will fall because fewer cars will be sold in the market.