Question

In 2011, Knight Electronics sold 350,000 digital video recorders (DVRs.) Based on the company’s analysis of the DVR market, the company believed that $160 was the equilibrium price based on the following supply and demand schedules.

Supply & Demand Schedule

2011 Price	Amount Supplied	Amount Demanded
$120	290,000	390,000
$140	320,000	370,000
$160	350,000	350,000
$180	380,000	330,000
$200	410,000	310,000
$220	440,000	290,000

As the price of gasoline rose and the economy hit the skids, consumers began driving less and going out less frequently for entertainment. With more people staying at home, DVR usages increased. In 2012 Knight revised its estimate of the amount of product demanded. At each of the above price points, they estimate that consumers will purchase (demand) 50,000 more DVRs. For instance, at $140, now 420,000 DVRs will be sold. The price/amount supplied relationship remains the same.

1. Describe what has happened to the supply and demand curves for Knight DVRs in 2012.  Hint: plot out the supply and demand curves and new demand curve (after price of gasoline rose).
2. What is the new equilibrium price?
3. How many DVRs will be produced at the new equilibrium price?
4. Knight revised its estimate of the amount of product demanded for 2012 as described above. In 2013 a new technology become available enabling DVRs to communicate over cell phones and the Internet. Knight’s competitors are selling this new DVR, called SuperDVR, for $150. What will happen to the supply and demand curves for Knight DVRs now?

Answer 1