Answer to Question #117266 in Macroeconomics for Joyce

Question

You are the manager of a medium-sized company that assembles personal computers in Ghana. You purchased most components such as RAM in a competitive market. Based on your marketing research, consumers earning over $10000 per month purchase 1.5 times more RAM than consumers with lower incomes. One morning you picked up a copy of the dailies and read an article indicating that input components for RAM are expected to rise, forcing manufacturers to produce RAM at a higher unit cost. Based on this information, what can you expect to happen to the price you pay for RAM? Would your answer change if, in addition to this change in input prices of RAM, the article indicated that consumer incomes are expected to fall over the next two years as the company dips into recession? Explain your answer with appropriate diagrams

Answer 1

In this case, the price of the RAM can rise because cost increase, assume the news of the Wall Street Journal, people with earning lower $80,000 they won't buy RAM because is too expensive, and people with over these earnings will buy less RAM, in addition, the incomes will fall, and the demand of RAM will fall too, but for the same reason the price could fall for the poor demand.