Economics and Management Decisions
Assignment 1
Potential effects of the introduction of electric vehicles (EVs) on the equilibrium price and
quantity in the market for gasoline-powered cars using demand and supply analysis:
Demand for Gasoline-Powered Cars:
o The introduction of electric vehicles (EVs) presents a viable alternative to traditional
gasoline-powered cars. As EV technology advances and becomes increasingly
accessible, consumers may opt for EVs over gasoline-powered cars. This shift can be
attributed to various factors including lower operational costs and the perceived
environmental benefits of EVs.
o Moreover, if EVs are competitively priced or supported by government incentives and
tax subsidies, consumers may find themselves with more disposable income.
Consequently, this surplus expenditure potential may lead to a decline in the demand
for gasoline-powered cars as consumers explore alternative goods and services.
o Additionally, gasoline-powered cars and gasoline itself are complementary goods.
Therefore, as the demand for gasoline-powered cars diminishes, there could be a
subsequent decrease in the demand for gasoline, thereby further curbing the appeal of
gasoline-powered cars.
o Overall, these factors contribute to a decline in the demand for gasoline-powered cars,
indicated by a leftward shift in the demand curve for gasoline cars.
Supply of Gasoline-Powered Cars:
o As demand for electric vehicles surges, manufacturers may pivot their production
strategies away from gasoline-powered cars toward EVs. Consequently, this shift could
trigger a reduction in the availability of gasoline-powered cars within the market.
o Furthermore, government regulations aimed at cutting emissions and encouraging the
adoption of electric vehicles could intensify the shift for automakers to prioritize EV
production over gasoline cars. These regulations might encompass stringent emissions
standards, fuel efficiency requirements, and financial incentives or subsidies tailored to
EV manufacturers.
o Moreover, automakers may significantly boost their investments in the research and
development of electric vehicle technologies, encompassing advancements in battery
technology and electric drivetrains. Such increased emphasis on EV investment could
divert resources and attention from the advancement of gasoline-powered vehicles,
potentially impacting the development of future gasoline car models.
o These factors will lead to a leftward shift in the supply curve for gasoline-powered cars.
Considering these factors, we can predict the following adjustments in equilibrium
price and quantity:
Equilibrium Price: A decrease in demand alongside a potential decline in supply
suggests a probable decrease in the equilibrium price of gasoline-powered cars. This
results from decreased consumer interest in gasoline-powered vehicles, along with
manufacturers potentially shifting resources towards producing electric vehicles.
Equilibrium Quantity: The equilibrium quantity of gasoline-powered cars is expected
to decrease. As more consumers prefer electric vehicles and manufacturers reduce
gasoline-powered vehicle production, both the quantity demanded and supplied at
equilibrium are expected to decrease.
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