Question

10 pts Question 9 Suppose the technology for hydraulic fracturing is discovered, raising the quantity supplied by 2 billion barrels at any price. How does this change in the market for oil (hydraulic fracturing) affect the other markets? Choose the diagram that best describes the change in the market for Cars (which run on gasoline). ОР • The equilibrium price for Cars decreases • The equilibrium quantity for Cars decreases • The equilibrium price for Cars increases • The equilibrium quantity for Cars decreases

Answer 1

Question 9

It has been stated that innovation in technology has increased the supply of gasoline.

Given the demand for a good, when its supply increases then its price decreases.

So, this increase in the supply of gasoline will result in a decrease in the price of gasoline.

Gasoline and cars are complementary goods.

In case of complements, decrease in price of one increases the demand for other and vice-versa.

So,

This decrease in the price of gasoline will increase the demand for cars.

When demand increases then demand curve shifts to the right.

So, the demand curve for cars will shift to the right.

Given the supply curve of cars, this increase in demand for cars will lead to an increase in the equilibrium price and equilibrium quantity of cars in the market for cars.

Hence, the correct answer is the option (3). [The equilibrium price for cars increases and the equilibrium quantity for cars increases].