Question

The estimated market demand function for electric vehicles (E) is Q = 182 - 6PE +...

The estimated market demand function for electric vehicles (E) is

Q = 182 - 6PE + 3PG + 5Y,

and the supply function is

Q = 122.+ 4PE

  1. Solve for equilibrium price and quantity in the market for electric vehicles. The price of electric vehicles is PE, the price of gasoline-powered cars is PG, and household income is Y.

Currently the price of gasoline-powered cars, PG, is 40 (thousand dollars) and household income, Y, is 48 (thousand dollars).

  1. At the market equilibrium, what is consumer surplus?
  2. Suppose that the price of gasoline-powered cars increases from 40 to 46 (thousand dollars). What is consumer surplus in the market for electric vehicles at the new equilibrium?
  3. In a diagram, please draw the original (inverse) demand function and the supply function. Note the original equilibrium. Then draw the new (inverse) demand function after the increase in the price of gasoline-powered cars. Note the new equilibrium. Shade in the consumer surplus for both.
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