Question

Microeconomics

In the market for Chromebooks (a normal good) explain whether the following events would cause a change in demand or a change in the quantity demanded. Explain the effect on the new equilibrium quantity and market-clearing price. (e.g., q up & p down)

1. There is a dramatic increase in the price of I-pads, that like Chromebooks, are used to access the internet.
2. A booming economy increases the income of the typical buyer of Chromebooks.
3. Consumers of Chromebooks anticipate that the price of this goodwill decline in the future.
4. There is a decrease in the price of microchips that are important inputs in manufacturing Chromebooks.

Please help, I have been struggling with understanding these concepts in Microeconomics!

Thank you in advance!

Answer 1

A change in quantity demanded is the movement along the demand curve. This happens when the price of the good changes, ceteris paribus.

A change in demand occurs when there is a change in factors other than the price of the good. This leads to an inward or outward movement of the demand curve.

a. I-pads are a substitute of chromebooks. As the price of I-pads rise, people who earlier demanded I-pads will demand Chromebooks. This increase in demand occured for reasonn other than change in the price of Chromebooks. Hence the demand curve will shift. The demand has increased. So the demand curve shifts outwards.

As there is a increase in demand , supply remaining the same, the equilibrium price and quantity both increase.

b. As the income of the buyers of Chromebooks increase, people will demand more of Chromebooks. Again since demand has increased due to factor other than price, this is an increase in demand and the demand curve shifts outwards.

Equilibrium price and quantity, both, increase.

c. Since buyers of Chromebooks anticipate fall in the price of goodwill of the product they reduce their demand. Demand curve shifts inwards. Hence there is a fall in the demand.

The equilibrium price and quantity both decline.

d. The price of microchips fall. This means the cost of producing Chromebooks decline. As this happens the supply increases leading to a fall in price. Because prices fall, there is an increase in quantity demanded.

Hence equilibrium price falls and equilibrium quantity increases.