Question

problem 4 suppose the market for electric scooters is initially in equilibrium. explain and illustrate using a supply and demand graph how each of the following scenarios would affect the equilibrium price and quantity: a. a new law provides subsidies to electric scooter producers. b. the price of gasoline increases significantly. c. a report shows that battery disposal causes environmental harm. for each scenario, clearly show the shift in the curve(s), and describe the effect on price and quantity.

Explanation:

a. A subsidy to producers reduces their costs. This shifts the supply curve to the right. With an increase in supply, the equilibrium price decreases and the equilibrium quantity increases.
b. Gasoline - powered vehicles are substitutes for electric scooters. When the price of gasoline increases, the demand for electric scooters increases (demand curve shifts to the right). This leads to an increase in both the equilibrium price and quantity.
c. A report showing environmental harm from battery disposal will reduce consumer preference for electric scooters. The demand curve shifts to the left. This causes the equilibrium price and quantity to decrease.

Answer:

a. Supply curve shifts right, equilibrium price decreases, equilibrium quantity increases.
b. Demand curve shifts right, equilibrium price increases, equilibrium quantity increases.
c. Demand curve shifts left, equilibrium price decreases, equilibrium quantity decreases.