Question

Business Week recently declared, “We have entered the Age of the Internet” and observed that when markets for goods or services gain access to Internet, more consumers and more businesses participate in the market. Use supply and demand analysis to predict the effect of e-commerce on equilibrium output and equilibrium price of products gaining a presence on the Internet.

Answer 1

It is given that more consumers and more businesses participate in the market. This implies that there is an increase in the number of consumers and producers. Hence the market experiences an increase in demand and an increase in supply. Demand curve shifts to the right. Supply curve shifts to the right. Assuming that the size of the shift remains same for both demand and supply, this results in raising the quantity but there is no change in the price in the final outcome