Part 1
At lunch, two friends are engaged in a heated argument. Their exchange goes like
this:
The first friend begins, “The supply of hybrid cars and the demand for hybrid cars
will both increase. I’m sure of it. I’m also sure the price of hybrids will go down.”
The second friend replies, “I agree with the first part of your statement, but I’m
not sure about the price. In fact, I’m pretty sure that hybrid prices will rise.”
Part 1 (1 point)
Explanation
See Hint
Both friends agree that the demand and supply for hybrid cars will increase.
For each of the following situations, determine whether the demand curve or
the supply curve increases by dragging the item to the appropriate category.
Categories
• D increases
o Gasoline prices rise.
o The government gives consumers a subsidy to buy hybrid cars.
• S increases
o More automobile producers start producing hybrids.
• N
o The price of non-hybrid cars falls.
o The price of batteries for hybrid cars rises.
• Part 2 (1 point)
• Explanation
• See Hint
• Suppose the second friend has said the following: “I agree that the
demand for hybrid cars will increase, but the supply will decrease. I am
pretty sure that __________.” Which of the following statements is
correct?
