Demand for cars is P = 100−8Q and supply is P = 10 +Q. Q represents number of cars in thousands; and P is the price per car in thousands of dollars.
(Equilibrium price P1*=20 & Q1*=10)
Question:
In order to grow manufacturing jobs, suppose the federal government decides to give drivers refund $5,000 when they file their income taxes if they purchase a new car that was made in US. Will this policy affect the demand or supply curve and which way will your choice shift? Explain.
Hint: Think about how government wants to affect P* and Q*