Electric cars Now consider the invention of cheap electric v

Electric cars: Now consider the invention of cheap electric vehicles. How will this change the equilibrium price and quantity of gasoline? Explain your reasoning. (Be sure to identify which of the following apply: the cost of production, a change in technology, tastes and preferences, income, the price of substitutes or the price of complements affects equilibrium price and equilibrium quantity)

Solution

This would lower the demand for gasoline powered cars and therefore lower the demand for gasoline. Price of subsititute will apply in this case. Next step would be worldwide boom in electric car manufacturing. Supply shifts

out

–As the number of sellers increases, quantity will increase and price will decrease