Question

Question A1

(a) Answer the following questions by using demand and supply analysis for the market of printer.

(i) Suppose the production of printer is now completely-automated. Use the demand and supply analysis to explain how it affects the market of printer. What are the effects on the equilibrium price and equilibrium quantity of printer? No diagram is needed but you need to describe how the curve(s) shift(s).

(ii) Suppose the price of ink for printers increases substantially recently. Use the demand and supply analysis to explain how it affects the market of printer. What are the effects on the equilibrium price and equilibrium quantity of printer? No diagram is needed but you need to describe how the curve(s) shift(s).

(iii) After considering both effects of part (a)(i) and (a)(ii), what are the combined effects on the equilibrium price and equilibrium quantity of printer? Suppose we observe that the quantity sold increases in the market of printer. Provide the theoretical explanation of this possibility and illustrate your explanation with a demand and supply diagram.

(b) Nintendo is a consumer electronics and video game company. You conducted a marketing research a month ago and estimated the current supply and demand functions of Nintendo Switch. They are described by the following equations: Supply: QS = 1,000 + 2P Demand: QD = 34,000 – 8P where QD is the quantity demanded (in units) and QS is the quantity supplied (in units). P is the price (in dollar term). Define equilibrium. Calculate the equilibrium price and equilibrium quantity of Nintendo Switch. Show your working.

Answer #1

1.

A) Due to automated production, production of printers would increase drastically. Supply curve of printers will shift to the right, leading to a fall in price of printer and Increase in sales

B) Since inks and printers are complementary goods, increase in price of inks wlll reduce demand for inks as well as printers. Demand curve for printers will shift to the left. This will lead to a fall in both price and quantity sold of printers

C) Combining the two effects together, graph would look like:

Thus, price of printers would fall while quantity sold will remain more or less unchanged.

2.

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