By 2020, automobile market analysts expect that the demand for electric autos will increase as buyers become more familiar with the technology. However, the costs of producing electric autos may increase because of higher costs for inputs (e.g., rare earth elements), or they may decrease as the manufacturers learn better assembly methods (i.e., learning by doing). What is the expected impact of these changes on the equilibrium price and quantity for electric autos?
A) Unambiguously higher equilibrium price and quantity
B) Unambiguously higher price, and equilibrium quantity may be higher or lower
C) Unambiguously higher quantity, and equilibrium price may be higher or lower
D) We cannot form any unambiguous expectations for either price or quantity.

Question

Quizplus · Accepted Answer

The changes described in the question - higher costs for inputs and/or better assembly methods - may result in either higher or lower costs of production, and therefore may either increase or decrease the equilibrium price and quantity of electric autos. Without knowing the direction of these changes, we cannot form any unambiguous expectations for either price or quantity.

By 2020, Automobile Market Analysts Expect That the Demand for Electric