The purchases of electric plug-in hybrid cars are on the rise in the state of Georgia....

The purchases of electric plug-in hybrid cars are on the rise in the state of Georgia. The Chevrolet Volt is selling well, despite being sold at a price that doubles that of similar gasoline powered cars made by Chevy. Other automobile makers like Ford are adding plug-in hybrids to their lines at an incredible pace. What is the reason for the rising sales of plug-in hybrids? Is this an increase in demand or an increase in quantity demanded? What will happen if the supply curve shifts to the right as a result of this popularity for electric vehicles?

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Expert Solution

REASON FOR THE RISING SALES OF PLUG IN HYBRIDS:

It is increase in demand with no change in supply.Since the price of plug in hybrids is already high ,it will not be incease in qty demanded because increase in qty demanded happens when price of good decreases.

People are liking and preferring plug in hybrids, demand increases and demand curve shifts rightward. This creates the problem of "excess demand".The buyers are ready to pay higher prices. This will increase equilibrium price and equilibrium qty of product.

IF SUPPLY CURVE SHIFTS TO RIGHT:

As a result of popularity if supply increases and supply curve shifts to right , there will be problem of "excess supply". This will increase competition among sellers.To increase their selling they will reduce price of plug in hybrids.When price decreases,extension in demand (law of demand) and contraction in supply (law of supply) will happen. Now, more qty will be sold at reduced price because equilibrium price reduces and equilibrium qty decreases.

Rahul Sunny answered 6 months ago

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