MC Qu. 101 If the price of gasoline increases significantly...

If the price of gasoline increases significantly, then we’d expect the price for hybrid and electric cars to

BlackTom Analysis

Question

MC Qu. 101 If the price of gasoline increases significantly...

If the price of gasoline increases significantly, then we’d expect the price for hybrid and electric cars to

BlackTom Analysis

BlackTom AI · Accepted Answer

When the price of gasoline rises significantly, drivers look for cheaper alternatives to fuel costs, making hybrid and electric cars more attractive as substitutes. 
Option 1: 'increase, and the quantity to decrease.' This is incorrect because an increase in demand for hybrids and electric cars would typically raise both equilibrium price and quantity, not lower the quantity. A price rise alone would not cause a decrease in quantity demanded overall for the market; the quantity demanded moves along with the demand curve to a higher price and higher quantity when supply can meet the new demand. 
Option 2: 'increase, and the quantity increase.' This matches the standard supply-and-demand framework: higher demand shifts the demand curve right, leading to a higher equilibrium price and a higher equilibrium quantity if the market can adjust supply. The substitution effect from pricier gasoline makes buyers willing to purchase more hybrids/electric cars, increasing both P and Q in equilibrium. 
Option 3: 'decrease, and the quantity to increase.' Here, the price is said to fall while quantity rises. This scenario would occur if supply increased dramatically or demand shifted in an unusual way, but not from a gasoline price shock driving demand for hybrids upward; a gasoline price spike does not typically push equilibrium price down. 
Option 4: 'decrease, and the quantity to decrease.' This would imply both price and quantity fall, which contradicts the expected outcome from a positive demand shift toward hybrid/electric cars due to higher gasoline costs. The usual effect is at least a higher price and higher quantity when demand increases. 
In summary, the gasoline price spike makes hybrids/electric cars more attractive, shifting demand to the right and leading to a higher equilibrium price and a higher equilibrium quantity in the market, which aligns with option 2.

MC Qu. 101 If the price of gasoline increases significantly... If the price of gasoline increases significantly, then we’d expect the price for hybrid and electric cars to BlackTom Analysis

View Explanation

Log in for full answers

Similar Questions

When the price of Blu-ray players dropped, the demand for DVD players went down. This tells us that DVD players and Blu-ray players are

Suppose that the demand for emu leather falls after a decrease in price of snake skin. This would mean that emu leather is:

When the price of Blu-ray players dropped, the demand for DVD players went down. This tells us that DVD players and Blu-ray players are

Jamestown heating and air-conditioning company specializes in electric heat pumps. The business should keep track of the price of natural gas, knowing that

If two goods are substitutes, what happens when the price of one rises?

Suppose that goods A and B are close substitutes. If the price of good A falls, then we would expect an:

If two goods are substitutes, what happens when the price of one rises?

Suppose that goods A and B are close substitutes. If the price of good A falls, then we would expect an:

More Practical Tools for Students Powered by AI Study Helper

Homework AI Solver

Stylized AI Paper Writer

Plagiarism Checker Assistant

Citation AI Academic Writing Tool

In-Class Translation Assistant

AI Note Generator

AI Quiz Answers

Past Exam Questions from University Test Bank

Smart Practice Assistant

Adaptive Practice

Making Your Study Simpler