Question

How will a new law mandating an increase in required levels of automobile insurance affect the equilibrium price and quantity in the market for new automobiles? Automobile insurance and automobiles are complements. An increase in automobile insurance rates will thus shift the demand curve for automobiles to the left. Some people Who would have bought new automobiles with the lower insurance rates choose not to have a new car.

Answer 1

Price and quantity will fall

Step-by-step explanation:

When a complement product/service gets more expensive or it simply becomes mandatory and unavoidable, the equilibrium price and quantity for the first product/service would fall. New consumers would be hindered to buy automobiles with the fact that they have to buy more insurance for that same car. This is the effect of the price change of a complement product/service.