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Studying behavior of substitutes

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Suppose gasoline and hybrid vehicles are substitutes. On the back, draw a graph indicating what will happen in the market for hybrid vehicles if the price of gasoline increases. Be sure to label your graph carefully, putting Price on the vertical axis and Quantity on the horizontal axis. You do not need to have actual numbers on this graph, but you should clearly indicate how the increase in the price of gasoline will affect the market for hybrid vehicles, and what will happen to the equilibrium price and quantity of hybrid vehicles.

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Solution Summary

The solution describes the effect of price increase of one good on the the demand of its substitute. Concept has been explained with the help of suitable graph. The price and quantity of hybrid vehicles are examined.

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Solution:

Goods X and Good Y are called substitutes if an increase in the price of good X will increase the demand of good Y.

Here we are given that gasoline and hybrid vehicles are substitutes.

In ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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