Suppose that the demand curve for new automobiles is given by QA = 20 - 0.7PA - PG where QA and PA are the quantity (millions of vehicles) and average price (thousands of dollars per vehicle), respectively, of automobiles in the United States, and PG is the price of gasoline (dollars per gallon). The supply of automobiles is given by Q5A = 0.3PA. Suppose that the demand and supply curves for gasoline are QdG = 3 - PG and QSG = PG.
a) Find the equilibrium prices of gasoline and automobiles.
b) Sketch a graph that shows how an exogenous increase in the supply of gasoline affects the prices of new cars in the United States.