Answer to Question #170364 in Microeconomics for Tayyaba

Question

Explain the following statements use supply-and-demand diagram where necessary.

 “An increase in the demand for notebooks raises the quantity of notebooks demanded but not the quantity supplied.” Is this statement true or false? Explain.

Over the past 20 years, technological advances have reduced the cost of computer chips. How do you think this affected the market for computers? For computer software? For typewriters?

Answer 1

The statement is False .When there is an increase in demand there will be an rise in supply too so as to match the final price increase generated by the rise in demand. A rise in demand will increase equilibrium price and quantity supply. Thus the statement would be true is if supply were a straight line.

Technological advances that reduce the cost of producing computer chips represent a decline in an input price for producing a computer. The result is a shift to the right in the supply of computers, as shown below . The equilibrium price falls and the equilibrium quantity rises.

Since computer software is a complement to computers, the lower equilibrium price of

computers increases the demand for software. The diagram below shows the result is a increase in both the equilibrium price and quantity of software.

Since typewriters are substitutes for computers, the lower equilibrium price of computers reduces the demand for typewriters.The diagram below shows the result is a reduction in both the equilibrium price and quantity of typewriters.