Answer to Question #191737 in Macroeconomics for Cedar

Question

You are the manager of medium-sized company that assembles personal computers in Ghana. You purchased most components such as random access memory (RAM), which is an input for your personal computers, on a competitive market. Based on your marketing research, consumers view personal computers in the Ghanaian market as a normal good. One morning, you picked up a copy of the Graphic Business, published by the Graphic Communications Group limited, and read an article indicating that the price of RAM have been increased effective the next day, forcing manufacturers to produce computers at a high unit cost. In addition, the article indicated that consumer incomes are expected to fall over the next two years as the economy dips into recession. Explain your answer with an appropriate diagram, how these events would affect the equilibrium price and quantity.

Answer 1

Due to increase the price of the computer, the demand of the computer will be decreased, according law of demand. When the price increased, the quantity demanded decreased. Ceteris paribus. The supply curve AS will shift to the left/upward and there will be a movement along with the demand curve.

Here the computer is said to be a normal good. For the case of normal good when the income increased, quantity demand increased, and when the income decreased, quantity demand decreased. Here due to recession consumers' income decreased, therefore the demand of the computer will also decreased. There will be a movement along with the supply curve AS and the demand curve AD will shift to left/ downward.