Question
1.(20 points) Consider the market for new automobiles with standard looking supply and demand schedules. Use properly labeled graphs to analyze the effects of the
1.(20 points) Consider the market for new automobiles with standard looking supply and demand schedules. Use properly labeled graphs to analyze the effects of the following changes on market outcomes (equilibrium price and quantity): 2 A. (4 points) The government increases parking costs substantially. B. (4 points) The local currency depreciates, and the majority of new cars or their parts / equipment for making them are imported. C. (4 points) It is always the case that automobiles can be purchased used instead of new, that is, there is a secondary market for used automobiles. One of the costs faced by individuals on this market is information: the buyers know less about the quality of the used automobile than the sellers. Analyze the effect of the following change on outcomes in the market for new automobiles: a reduction in information costs at the secondary market. D. (4 points) Public transportation becomes cheaper and more convenient than it used to be. At the same time, improvements in technology result in lower costs of producing new automobiles. E. (4 points) The government provides a trade-in or scrapping subsidy: consumer can trade-in an old (usually >=15 years old) used car and receive a substantial discount towards purchasing a new car. Analyze the effects of this policy both in the short run and in the long run.
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