Question

47. In 1985, International Data Corp. (IDC) estimated that 3.7 million desktop computers had been sold at an average price of $1,054. In 2000, the number sold in the United States had risen to 132 million, with the average price decreasing to $700.

Is the above change in price and quantity caused by a shift of demand or a shift of supply? Show your answers in a graph.

Answer 1

In 1985:

Quantity of desktop computers sold = 3.7 million

Average price of desktop computer = $1,054

In 2000:

Quantity of desktop computers sold = 132 million

Average price of desktop computer = $700

Therefore, from 1985 to 2000, the quantity of desktop computers sold increased while the price of desktop computers decreased.

As observed from the above graph, when the demand increases, both the equilibrium price and equilibrium quantity increase. When the supply increases, the equilibrium price decreases while the equilibrium quantity increases.

Therefore, the change in between 1985 and 2000 is due to the shift in supply(to the right)