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Explain the effect on market price and quantity in the market for mobile phones of each...

Explain the effect on market price and quantity in the market for mobile phones of each of the following: a) Technical improvements reduce production costs. b) The price of fixed-line calls fall sharply.

Explain the effect on market price and quantity in the market for mobile phones of each of the following:

a) Technical improvements reduce production costs.

b) The price of fixed-line calls fall sharply.

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Answer #1

Answer a) Due to technological improvements the production costs gets reduced and due to fall in the cost of production the Supply rises and Supply curve shifts to right from S to S1.

•Equilibrium price falls and equilibrium quantity rises

New equilibrium price is P1 and quantity is Q1.

Answer b) Complementary goods are those which are used together for satisfaction of a particular want.

There exist an inverse relationship between Change in price of one complementary good and change in quantity of another complementary good.

Mobile phones and fixed line calls are complementary to each other . Thus with a fall in price of fixed line calls the demand increases and demand curve shifts to the right from D to D1.

• The Equilibrium price rises and Equilibrium quantity also rises.

Equilibrium price rises to P1 and quantity rises to Q1.

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