Question

Assume the market for electric cars is initially in equilibrium. Then two changes occur in the market:

1. Everyone suddenly becomes more concerned about air pollution, and the demand for electric cars increases
2. Car manufacturers invest in new facilities, which allows them to increase the supply of electric cars

Assume the change in demand is greater than the change in supply. Compare the new equilibrium price and quantity to the original equilibrium price and quantity

Group of answer choices

a.The new equilibrium will have a higher price and higher quantity

b.The new equilibrium will have a higher price and lower quantity

c.The new equilibrium will have a lower price and higher quantity

d.The new equilibrium will have a lower price and lower quantity

Answer 1

When the demand for electric car increases, it will shift the demand curve to the right, and at the same time due to the new facilities the supply of electric cars will also increase, that will shift the supply curve to the right as well and it is given that change in demand is greater in the change in supply, so that implies the new equilibrium will have a higher price and higher quantity as compared to the situation before, therefore, the right answer is option A.