1. Comparative Statics
Explain how the following events will affect the demand and supply curves for Gasoline Car. In each case explain whether the demand and supply curves will (i) move to the left; (ii) move to the right; or (iii) not move.
a. The price of gasoline engine falls.
How will this affect the demand curve for the gasoline car? EXPLAIN WHY (3Points)
How will this affect the supply curve? EXPLAIN WHY (3Points)
Show how this affects the equilibrium price and quantity. Make sure your demand and supply curves follow the law of demand and supply, the curves and axes are appropriately labeled, arrows indicating movement of curves are shown, and the old and new equilibrium prices are quantities are clear. (4Points)
Sketch area: Draw the demand and supply curves, label axes, show curve movements with arrows, and mark old and new equilibria.
b. The price of electronic car decreases
How will this affect the demand curve for the good listed above? EXPLAIN WHY(3Points)
How will this affect the supply curves? EXPLAIN WHY (3Points)
iv. Show how this affects the equilibrium price and quantity. Make sure your demand and supply curves follow the law of demand and supply, the curves and axes are appropriately labeled, arrows indicating movement of curves are shown, and the old and new equilibrium prices are quantities are clear. (4Points)
Sketch area: Draw the demand and supply curves, label axes, show curve movements with arrows, and mark old and new equilibria.
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