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The following graph shows the market for cars in 2010
The following graph shows the market for cars in 2010. Between 2010 and 2012, the equilibrium quantity of cars remained constant, but the equilibrium price of cars increased. From this, you can conclude that between 2010 and 2012, the supply of cars (decreased/increased/was unchanged) and the demand for cars (was unchanged/ increased/ decreased). Adjust the graph to illustrate your answer by showing the positions of the supply and demand curves in 2012.
Expert Solution
The supply of cars decreased
The demand for cars increased
On the graph below, the increase in demand for cars is demonstrated by the shift in demand curve from D0 to D1. However, this increase in demand for cars was offset by a decline in the supply of cars by the same quantity. Hence, the price of cars increased from P1 to Pe and the equilibrium quantity of cars remained unchanged (Q1). On the graph, the increase in supply from S0 to S1 compensated the rise in demand.
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