Question
The global demand for electric vehicles (EVs) has been
steadily increasing due to growing environmental concerns and government incentives. However, the supply of lithium-ion batteries, a crucial component of EVs, has been facing constraints due to limited production capacity and supply chain disruptions. In this scenario, what is the most likely impact on the equilibrium price and quantity of EVs in the short run?Solution
The increase in demand for EVs coupled with the limited supply of batteries will create a shortage in the market. This shortage will drive up the price of EVs. However, the impact on quantity is uncertain as it depends on the extent of the supply constraints and the responsiveness of demand to the price increase.
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