Question

Patriots Tickets P Apartments Event: Patriots have a winning season Event: Interest rates on mortgage loans increase 3. When a new generation iPad is released, there is often a line extending around the Apple Stores and the product is sold out before all the people in line are able to buy the tablet. What does this say about the price of a new iPad? Explain how this issue could be corrected. (10pts) 4. When supply decreases...(10pts) a What must happen to the equilibrium price in the market? (3pts) b. Fully explain why, the price must change the way it does. (7pts) 5. True or false? As the price of iPhones decreases, the demand for iPhones increases Explain your answer. (10pts).

Answer 1

3. The demand of the ipad was so much more than the supply that each customer in the queue couldn’t end up buying one. This shortage of supply means that the price of the ipad was higher than the equilibrium price. This issue could be corrected by increasing the supply. If the be increased and equals the demand, then there will be an equilibrium and the price of the ipad would be less than the previous price.

4. a. When supply decreases, the equilibrium price tends to rise. And it is just the opposite when supply increases.

     b. The price must change according to the increase and decrease in the supply, demand remaining the same. The cost of production decreases when a huge amount is produced and increases when less amount is produced, because the fixed cost is constant in both while the variable cost changes. So, the cost of production being less when huge amount is produced (more supply); the price of the product will also be less. And the cost of production being more when fewer amounts are produced (less supply); the price of the product will also be more. Hence, the price varies according to the supply.

5. True. As the price of the iphones decreases the demand increases. Because according to the Law of Demand, there is a negative relationship between the price and demand. If we see this logically then, when the price of the iphones will decrease people will tend to buy them more because they are now getting the same thing at a lower price. And obviously when the price will increase, very less people will demand for it and will wait for the best opportunity to buy it when the product will be less expensive.