Question

2. A good gaming console has a library of games, great graphics, and an easy setup. The competition is fierce between Microsoft and Sony. Think about the demand for Microsoft’s Xbox One X and Sony’s PlayStation 4 Pro.

Explain the impact of the following separate events on the demand for Xbox One X games and the quantity of Xbox One X games demanded, ceteris paribus. (each part, a – e, is worth 2 marks)

a. There is an increase in the price of an Xbox One X game console.

b. There is a decrease in the price of PlayStation 4 Pro game consoles.

c. There is an increase in the number of people who write code (programmers) for Xbox One X games and who produce Xbox One X games.

d. Consumers’ incomes increase.

e. Events (b) and (c) occur simultaneously

Answer 1

a) An increase in the price of the X box will decrease the quantity of the goods demanded in the market and people will buy less X box games.

b) A decrease in the price of the substitute will shift the demand for X box to the left and the new equilibrium will be at a lower price and lower output in the market. The demand for X box will fall.

c) This will make the games cheaper and shift the supply curve to the right and that will shift the new equilibrium to the right at a higher quantity and lower price in the market. The demand will increase.

d) Increase in the consumer income will increase the demand for the goods and that will shift the demand curve to the right. Demand will increase.

e) if these tow events occur together then in that case the demand will fall and the supply will increase. This will decrease the price of the x box but the change in the quantity will be indeterminate.