Question

Price (Dollars per gallon)	Initial Quantity of Barrels per Day Demanded (thousands)	New Quantity of Barrels per Day Demanded (Hundreds)
$4.00	25	12.5
$3.50	500	250
$3.00	1,000	500
$2.50	1,500	750
$2.00	2,000	1,000
$1.50	2,500	1,250

1B. Why do electric cars cause consumers who are willing to pay $4.00 a gallon to decrease?

Answer 1

The electic cars caused the decrease in demand of gas/oil to decrease because electric cars and conventional cars (which use oil/gas) are substitutes of each other. Both can be used as a regular means of transport by common man.

When electric cars come in the market, consumers get a cheaper substitute of the conventional cars. Hence, they shift from conventional cars to electric cars.

When the purchase of conventional cars decline, the demand for oil/gas per gallon will also decline. Because conventional cars and oil/gas are complements of each other. Conventional cars run with oil/gas only.

Thus, when the demand for conventional cars decline due to the entry of electric cars, the demand per gallon also decreases.