Question

1. Draw the market for electric vehicles in initial equilibrium. Be sure to label the axes and the curves/lines. Clearly demonstrate the initial equilibrium price and quantity.

2. Suppose the cost of lithium-ion batteries, an input into the production of electric vehicles, has dropped more steeply than expected. Use the 4-step process to demonstrate the effect of this change in the market for electric vehicles. Explain why you have drawn the change you have.

3. Has there been a change in demand? Explain.

4. Analyze and explain the change in the equilibrium price and quantity. Explain.

5. Explain how any equilibrium price and quantity combination is efficient. Use 1 of the following in your explanation. Be sure to define your terms.

a. producer and consumer surplus

b. allocative and productive efficiency

c. Pareto efficiency to address this

. Question 2 a) The demand for driverless cars is highly inelastic. Draw the market for driverless cars in equilibrium. Be sure to label the axes and the curves/lines. Clearly demonstrate the initial equilibrium price and quantity.

b) On this same graph, demonstrate what will happen to either demand or supply when the government offers tax incentives (subsidies) to firms developing driverless cars. Explain why you have drawn the changes you have

. c) On this same graph, demonstrate what will happen if consumer incomes increase at the same time as the tax incentive is put into place.

d) Analyze and explain the joint effect of the tax incentive and the increase in income on the equilibrium price and quantity of driverless cars.

Question 3 a) The following information describes the demand schedule for the market for a particular good. Use this information to determine the price elasticity of demand with a price change from $3,000 to $3,300. Show your work. Price Quantity demanded $3,000 240,000 $3,300 200,000 $3,600 160,000 $3,900 120,000 $4,200 80,000

b) Suppose that you are the owner of the firm that produces this good and that you currently charge $3,000 per unit. Your closest competitors charge $3300 for an identical product. Describe how you can use the information about elasticity to determine whether or not to increase your prices.

c) Compute the total revenue under both price schemes. What happens to your total revenue if you decide to increase prices? Show your work.

Answer 1