Let D₀ and S₀ Be the Initial Demand and Supply

question 42

Multiple Choice

Let D₀ and S₀ be the initial demand and supply curves for gasoline. Let P₀^* and Q₀^* be the initial equilibrium in this market. There is an increase in alternative fuels available through research and development. Which ONE of the following correctly captures the effect of this change on the market for gasoline?

• A) Both equilibrium quantity and price will increase
• B) Both equilibrium quantity and price will decrease
• C) Equilibrium quantity will increase, but equilibrium price will decrease
• D) Equilibrium quantity will decrease, but equilibrium price will increase

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