Answer to Question #221862 in Microeconomics for Medha

Question

Section B: Answer ANY THREE questions

2. Suppose, Vacuum Cleaners have an elastic demand and Mobile Phones have an inelastic demand. Now suppose that technological advancement triples the supply of both products.

a. Draw two separate diagrams to show what happens in each of the market to the equilibrium price and quantity? (3 marks)

b. Which product experiences a larger change in price? (1 mark)

c. Which product experiences a larger change in quantity? (1 mark)

d. What happens to total consumer spending on each product? [1 mark)

Answer 1

For mobile phones, the Equilibrium point will shift from E0 to E2 based on the demand presented by the respective company.

The Vacuum cleaner's Equilibrium position will shift from E3 to E1