assume that we are looking at the market for electricity. initially, assume that the market is at equilibrium where the price is $.20 cents per kilowatt hour and at a quantity of 1.5 trillion kilowatt hours. how would a government decree that outlawed gas cars and forced everyone to drive an electric car impact this electric market? which of the following is most accurate? holding everything else constant.

assume that we are looking at the market for electricity. initially, assume that the market is at equilibrium where the price is $.20 cents per kilowatt hour and at a quantity of 1.5 trillion kilowatt hours. how would a government decree that outlawed gas cars and forced everyone to drive an electric car impact this electric market? which of the following is most accurate? holding everything else constant.

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A government decree that outlaws gas cars and forces everyone to drive an electric car would increase the demand for electricity significantly, as electric cars require electricity to charge their batteries. Holding everything else constant, this increase in demand would shift the demand curve for electricity to the right. At the initial equilibrium price of $0.20 per kilowatt-hour and quantity of 1 trillion kilowatt-hours, the new demand would exceed the original supply at this price. This would cause a shortage of electricity at that price, putting upward pressure on the price. As a result, the equilibrium price of electricity would increase above $0.20 per kilowatt- hour, and the equilibrium quantity of electricity would also increase beyond 1 trillion kilowatt-hours to meet the higher demand. Thus, the most accurate impact of the decree is that both the equilibrium price and quantity of electricity would rise in the market for electricity. This reflects an increase in demand caused by the shift to electric vehicles while supply remains constant in the short-term. The price increase serves as an incentive for electricity suppliers to increase production or for new suppliers to enter the market to meet higher demand. In summary:

  • Demand for electricity increases due to electric vehicle adoption.
  • Equilibrium price rises above $0.20 per kilowatt-hour.
  • Equilibrium quantity rises above 1 trillion kilowatt-hours.

This analysis assumes all other factors remain constant, such as electricity supply capacity and other market conditions. This outcome aligns with fundamental economic principles of supply and demand in electricity markets.

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