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During 2016, the demand for rental cars appeared to be falling. At the same time some industry observers expected that several smaller rental car companies might exit the market (assume that the effect of the smaller companies exiting the market has a weaker (smaller) impact).

a. Use a demand and supply graph to analyze the effects of these factors on the equilibrium price and quantity of rental cars. Clearly show on your graph the old equilibrium price and quantity and label the old equilibrium point as "A". Also, clearly show on your graph the new equilibrium price and quantity and label the new equilibrium point as "B".

b. Can you tell for certain whether the new equilibrium price will be higher or lower than the old equilibrium price? Briefly explain.

Microeconomics, Economics

  • Category:- Microeconomics
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