An increase in input costs in the production of electric automobiles caused the price of electric automobiles to rise.Holding everything else constant, how would this affect the market for gasoline-powered automobiles (a substitute for electric automobiles)?
A)The supply of gasoline-powered automobiles would increase and the equilibrium price of gasoline-powered automobiles would decrease.
B)The demand for gasoline-powered automobiles would increase and the equilibrium price of gasoline-powered automobiles would increase.
C)The demand for gasoline-powered automobiles would decrease because consumers could afford to buy fewer gasoline-powered automobiles.
D)The demand for gasoline-powered automobiles would increase and the equilibrium price of gasoline-powered automobiles would decrease.

Question

Quizplus · Accepted Answer

An increase in the price of electric automobiles would make gasoline-powered automobiles relatively more attractive, leading to an increase in demand for gasoline-powered automobiles as they are substitutes for electric automobiles. This increased demand would shift the demand curve for gasoline-powered automobiles to the right, causing an increase in the equilibrium price of gasoline-powered automobiles.

An Increase in Input Costs in the Production of Electric