Question

In recent years, the Chinese government has allowed many automobile factories to be built in China by companies such as the Shanghai Automotive Industry. Many of these cars are intended for the Chinese market. At the same time, incomes in China are rising. On a piece of paper, draw a clearly labeled graph to explain what is happening in the Chinese auto market.

Answer 1

Because you can see that many factories are built, what happens is that the supply increases as shown in the figure and also due to the increase in demand the demand increases as a result of which there are two possibilities where due to increase in supply the supply curve shift to the right and the equilibrium price decreases and quantity increases due to the increasing demand the demand curve shift to the right and the equilibrium price and quantity increasesin both the cases the equilibrium quantity is increasing and therefore the equilibrium quantity of cars is increased but the equilibrium price is ambiguous and it can increase and also decrease