2. CORE QUESTION, PLEASE COMPLETE! Spillover effects of subsidies on electric cars? (30 points in total) For environmental considerations, the government introduces a subsidy of s% on electric cars. A manufacturer producing both gas-operated and electric vehicles is wondering about how such a subsidy will impact the demand for gas-operated cars. (a) (6 points) For a consumer who budgets / for consumption of gas-operated and electric cars, illustrate with a graph the situation before and after the subsidy is put in place. (b) (6 points) Assuming that both types of cars are normal goods, illustrate graphically the relationship between s on the vertical axis and number of electric cars on the horizontal axis. (c) (6 points) Now derive - again, graphically - the relationship between s and gas-operated cars. Can you tell if it slopes up or down? What does your answer depend on? (d) (6 points) Consider a supply shock that affects the fuel price of gas-operated cars, making them more expensive to operate. Illustrate the impact graphically, and plot a graph with the demand for electric cars on the horizontal axis and the price of gas-operated cars on the vertical axis. (e) (6 points) How do you think your answer to part (c) would change, if instead of electric cars, the company were manufacturing only gas-operated cars and the fuel they use, and the government were taxing (negatively subsidising) fossil fuels? PLEASE TURN OVER