Answer to Question #259672 in Microeconomics for farouk

Question

You are the manager of a midsized company that assembles personal computers. You purchase most components – such as random-access memory (RAM) – in a competitive market. Based on your marketing research, consumers earning over RM80,000 purchase 1.5 times more RAM than consumers with lower incomes. One morning, you pick up a copy of The Wall Street Journal and read an article indicating that input components for RAM are expected to rise in price, forcing manufacturers to produce RAM at a higher unit cost. Based on the curve, discuss the following scenarios.

a)      Based on this information, what can you expect to happen to the price you pay for random access memory (RAM)?

b)     In addition to this change in RAM input prices, the article indicated that consumer incomes are expected to fall over the next two years as the economy dips into recession? 

Answer 1

a) If the current value of input rises, the rate of RAM will increase as well. The favorably sloping section of the collective supply graph will move to the left when the price of RAM rises. The overall proportion provided will surpass the average volume required if the price range exceeds the optimum price threshold, putting under strain on prices.

b) When revenue or price fluctuates, the budget constraint paradigm suggests that various solutions are feasible. Households will desire more regular products as their income grows but less substandard items as their income increases. In addition, a more excellent price for one commodity might result in an increased or decreased desire for the other. As a result of the reduced client spending, there will be a decline in RAM sales, resulting in a price reduction from the vendors.