Question

Discuss how each of the following changes will shift the Supply and/or Demand curves, and its effect on the market clearing price (P) and quantity(Q) of personal computers. Assume computers are a normal good. (A). A rise in the incomes of buyers of computers occurs, and nothing else changes. (B). The number of suppliers selling computers increases, and nothing else changes.

Answer 1

a) A rise in the income of people will allow people to consume more. The same thing goes with the demand for the computer. If the income of the people rises they will demand more computer. All things being the same this will shift the demand curve for a computer to the right. The new equilibrium or the clearing price will be at a higher price and more quantity of computers will be sold at this price.

b) If the number of the supplier in the market changes the number of computers supplied in the market will increase. This increased supply will decrease the price of the computer in the market. The new equilibrium price or the clearing price will be lower and more quantity of goods will be sold in the market.