discussionsectionhandout3answersfall2007

discussionsectionhandout3answersfall2007 - Econ 102: Fall...

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Econ 102: Fall 2007 Discussion Section Handout #3 1. Supply and Demand: The graph to the left represents the domestic demand and supply for Apple’s Ipod. What happens to the demand and supply curves as well as equilibrium price and quantity with the following changes? (a) The prices of earphones and Ipod cases drop. Price of Compliments fall, demand increases, supply stays the same, Q and P rise! (b) The price of downloading music on-line increases. Price of Compliments increase, demand decreases, supply stays the same, Q and P fall! (c) Creative, a competitor of Apple, lowers the price of all their mp3 players? Price of Substitutes decrease, demand decreases, supply stays the same, Q and P fall! (d) Suppose Brad Pitt and Angelina Jolie show their newborn kid on TV and name their kid after “Ipod”. Preferences change, demand may increase, supply stays the same, Q and P rise! (e) Suppose Ipods are made in China, and Chinese government decides to reduce tax for foreign companies in order to attract more investment. Capital for production increases, demand stays the same, supply increases, Q rises and P falls! (f)
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discussionsectionhandout3answersfall2007 - Econ 102: Fall...

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