Question

In a market for flat screen televisions, what affects on the market would the restriction of low cost flat screens from China have (in a supply and demand graph perspective)?

I am at a loss, as one could say supply would be affected as now there are less sellers in the market making TVs more expensive? On another note, one could also say demand would be impacted as low income individuals will have limited options to purchase TVs due to the restriction and lowering demand.

Answer 1

With the restrictions of low cost flat screens from China, now producers of flat screen TVs need to use high cost flat screens and this increases their production cost. As production costs increases, producers will produce less amount of TVs and supply of TVs will fall shifting the supply curve to the left. With the shifting of supply curve to the left, price of TVs will increase. Demand for flat screen TVs on the other hand will change depending on the price Elasticity of demand. If demand remains the same even after the price change, then supply also may not change at all but if demand decreases then producers will reduce supply to reduce production costs.