Question

Suppose that scientists finally confirm that cell phones are dangerous to people’s health. At the same time a major breakthrough in cellular technology makes the cost of producing cell phones really low. These two factors will cause the demand for cell phones to ___ decrease ___, and the supply of cell phones to ___ increase ___, thus the equilibrium price of cell phones will (type in one of the four options: ___ decrease ___, and the equilibrium quantity exchanged of cell phones will (type in one of the four options: ___ decrease ___.

ONE OF THE ANSWERS IS INCORRECT, I THINK IT IS THE EQUILIBRIUM QUANTITY BUT NOT SURE. PLEASE HELP

Answer 1

If scientists found that the cell phones are dangerous to health, that is a negative demand shock. The report would decrease the demand for the cell phones so the demand curve for the cell phone would shift to the left. The technological invention makes the production of cell phone much cheaper than before so the firm can produce more cell phones than before, this is an increase in the supply of cell phones, the supply curve would shift to the right. If this shifts are simultaneous and the magnitudes of changes are the same, the equilibrium price would decrease and the quantity will remain the same. This is shown in the below graph,

Ans:

Demand for cell phones to decrease.

Supply of cell phones to increase.

Equilibrium price to decrease.

Equilibrium quantity remains the same.