Equilibrium price decreases.
Equilibrium quantity increases.
Equilibrium Price: Since the cost of a key input (lithium-ion batteries) has decreased, the production cost for electric vehicles decreases. Lower production costs typically lead to a decrease in the equilibrium price of electric vehicles.
Therefore, the equilibrium price of electric vehicles would decrease.
Equilibrium Quantity: With the reduction in the cost of lithium-ion batteries, the production cost for electric vehicles decreases.Lower production costs often lead to an increase in the quantity supplied as producers find it more profitable to supply more at the given market price.
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Suppose the cost of lithium-ion batteries, an input into the production of electric vehicles, has dropped more steeply than expected. The accompanying graph depicts a market for electric vehicles. Demonstrate the effect of a reduction in the price of lithium-ion batteries by adjusting the accompanying diagram.
Equilibrium price ___.
Equilibrium quantity ___.