Question

Assume over a certain period of time the technology for producing compact disk players has improved,...

Assume over a certain period of time the technology for producing compact disk players has improved, and over the same period of time the economy has moved into a recession, causing the incomes of consumers to decrease. Which of the following will happen to the equilibrium price and equilibrium quantity for CD players? (Assume CD players are normal goods.)

Price will increase; quantity cannot be determined.

Price will decrease; quantity cannot be determined.

Quantity will increase; price cannot be determined.

Quantity will decrease; price cannot be determined.
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Answer #1

B. Price will decrease; quantity cannot be determined.

New technology will decrease the cost of production for same level of ouput or same cost of production will yield higher output, this will increase the supply of the product leading to rise in quantity and decrease in prices.

Decrease in income will induce consumers to decrease demand of the product which will lead to decrease in quantity and decrease in price.

EFFECT ON PRICE: DECREASE

EFFECT ON QUANTITY: CANNOT BE DETERMINED

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