Question

Automobile firms can use their inputs to make hybrid cars or "regular" (non-hybrid) cars. If the equilibrium price of hybrid cars rises sharply, the resulting shift in the supply curve for "regular" cars will cause:

Answer 1

Answer: a) an increase in the Equilibrium price of "regular" cars.

Explanation:

It is stated that the automobile companies use their inputs to make either the hybrid cars or the regular cars.

If the price of the Hybrid cars rises sharply, Automobile companies will make more Hybrid cars so as to take advantage of the situation and make more profit.

This would reduce the amount of inputs that they have available for regular cars and so they will make less regular cars.

As this supply of regular cars decreases,the supply curve will shift to the left and the price will increase to cater for this reduction in supply.