Answer to Question #230614 in Microeconomics for Aiza

Question

There is a market of computer i.e. there is some demand and supply of computer. Shown in a diagram the effect on the demand and supply curve, the equilibrium price and the equilibrium quantity if “THE SALARIES OF ELECTRONIC TECHNICIAN GO UP”. (Explain also in words).

Answer 1

Solution:

If the salaries of electronic technicians go up, the production costs for the computers will go up, which will ultimately push the prices of the computers up. This will cause an upward shift in the supply curve or a shift to the left due to a decrease in supply as a result of high costs of production. Due to the computer's price increase, their quantity demanded will fall since most consumers will prefer other cheaper substitutes whose prices have not changed.

 

The demand curve will shift inwards or to the left and the equilibrium point will move from the original E₀ to E₁. The equilibrium price P₀ will increase to P₁, while the equilibrium quantity will decrease from Q₀ to Q₁. Similarly, the supply curve will shift to the left from S₀ to S₁.

 

This is displayed as per the below graph: