Question

During the Obama administration, the development of low-cost batteries for electric cars received large amounts of federal funding in terms of subsidies. Meanwhile, American households gave a higher priority towards minimizing their environmental impact. Consider the market for zero-emissions electric vehicles where there is an upward-sloping supply curve and a downward-sloping demand curve.

1. Which direction will demand and supply shift?
A. Both curves will shift right
B. Demand will shift left and supply will shift right.
C. Deman will shift right and supply will shift left.
D. Both curves will shift left.

2. What will happen to the equilibrium price?
A. Change is ambiguous.
B. Price remains constant.
C. Prince increases.
D. Price decreases.

3. What will happen to the equilibrium quantity?
A. Change is ambiguous.
B. Quantity decreases
C. Quantity increases
D. Quantity remains constant

Answer 1

Answer: 1. Both Curves will shift right, 2. Change is Ambiguous, 3. Quantity increases

Step-by-step explanation:

1. Both Curves will shift right.

The funding of low-cost batteries for electric cars by Government will help car manufactures to decrease costs of production because they will buy Car Battery (which is an input in electric car production) at a low cost. Electric car manufacturers will now be able to manufacture electric cars at a low cost and the supply of cars will increase because they will produce more. The supply curve will shift to the right

American households have a higher priority towards minimizing their environmental impact, that will increase the demand for eletric cars because their impact on nature is minimal. the demand curve will shift to the right.

2. Change is ambiguous

Equilibrium Price could stay constant if both supply curve and demand curve shift equally to the right, on the other hand Equilibrium price could increase or decrease depending on which curve between supply and demand shifts more to the right.

3. Quantity increases

quantity supplied and demanded will increase when both curves shift to the right.Equilibrium Quantity will therefore increase

Answer 2

1. Which direction will demand and supply shift?

• A. Both curves will shift right

Subsidies reduce production costs and therefore the supply curve shifts to the right, lowering the equilibrium price. A higher demand towards minimizing environmental impact will shift the demand curve to the right since consumers' preferences for this type of product increase, therefore total demand increases.

2. What will happen to the equilibrium price?

• D. Price decreases.

At least in the short term, a rightward shift of the demand curve doesn't increase the equilibrium price, but a rightward shift of the supply curve decreases the equilibrium price. So the net effect would be a decrease in the price.

3. What will happen to the equilibrium quantity?

• C. Quantity increases

A rightward shift in the demand curve will increase the quantity demanded and the rightward shift in the supply curve will also increase the quantity supplied, therefore, the equilibrium quantity should increase.