Question

During the Obama administration, the development of low-cost batteries for electric cars received large amounts of federal funding in terms of subsidies. Meanwhile, American households gave a higher priority towards minimizing their environmental impact. Consider the market for zero-emissions electric vehicles where there is an upward-sloping supply curve and a downward-sloping demand curve. Which direction will demand and supply shift? Both curves will shift left. Both curves will shift right. Demand will shift right and supply will shift left. Demand will shift left and supply will shift right. What will happen to the equilibrium price? Change is ambiguous. Price decreases. Price remains constant. Price increases. What will happen to the equilibrium quantity? Quantity remains constant. Quantity increases. Quantity decreases. Change is ambiguous

Answer 1

Answer:

The demand and supply curve will both shift to the right.

The change in price is ambiguous.

The quantity will increase.

Explanation:

As the government provides subsidies to zero-emission vehicles. The cost of production for such vehicles producing firms will decline. This will cause an increase in supply as the firms will be able to produce more at the same cost. This will cause an increase in supply shown by a rightward shift in the supply curve.  

As there is a higher priority among households to reduce their environmental impact. They will demand more of these vehicles. This will cause an increase in demand indicated by a rightward shift in the demand curve.  

The rightward shifts in both demand and supply curve will cause an increase in the equilibrium quantity of the commodity.  

The change in price level depends upon the extent of the increase in demand and supply.