Question

Question 1.

Demand and Supply.

Nick Is wanting to purchase a second hand 2017 MacBook Pro, through a secondary market (Gumtree, Facebook, etc.). Nick lives in a city, that is very populated. He’s noticed that on the secondary marketplace, there is high volume of 2017 MacBook Pros.

He’s concluded that the average market price for his item is about $1000. Though due to the greater volume in a city, the market price is $1100. This could be, but not limited to a shift in equilibrium price because of an increase in demand and supply.

1. Explain further reasons why the price might have increased in a busier area?
2. He is planning on taking a trip to a rural area.  While he’s there he’s going to have a look for his item. Would the market price of his particular item increase or decrease in price? Explain your reasons?

Answer 1

i) Since, Nick stays in a city, one of the reason for rise in prices could be preference of city dwellers for MacBook pro who consider a MacBook Pro as a necessity for carrying out work and educational requirements. Another reason could be habit oof using laptops to carry out day to day activities like homework, online classes, work-from- home, etc. The other reason for high prices could be unavailability of closed substitutes in that city.

ii) Laptops in rural areas are luxury and therefore, MacBook Pro will have higher demand elasticity leading to an elastic demand curve, i.e. a small change in market price will lead to larger decrease in demand for MacBook Pro. Therefore, Nick will expect market price to be lower in rural areas. The consumption of laptop in rural area is a question of affordability rather than habit.