Question

What will happen to the equilibrium price and quantity of new cars if the price of gasoline rises, public transportation becomes cheaper and more comfortable, and the price of steel to produce cars decrease

a. Quantity will fall, and the effect on price is ambiguous
b. Quantity will rise, and the effect on price is ambiguous
c. Price will rise, and the effect on quantity is ambiguous
d. Price will fall, and the effect on quantity is ambiguous

Answer 1

D

Step-by-step explanation:

If the price of gasoline increases, it would become more expensive to own a car. As a result, the demand for new cars would fall.

public transportation can be regarded as a substitute for new cars, if public transportation becomes cheaper, the demand for new cars would fall.

Taking these two occurrences together, the demand curve for cars would shift leftward. Equilibrium price and quantity would fall.

If the price of steel to produce cars decreases, it would become cheaper to make cars. Thus, the supply of cars would increase. the supply curve would shift rightward and the equilibrium price would reduce while quantity would increase.

Taking these three occurrences together, equilibrium price would fall while the effect on quantity is ambiguous