Question

In recent years, the world demand curve for CDs shifted leftward due to continued increased use of MP3 players and streaming services. Also, the costs of providing CDs increased. As a result, we observed:    

	A.	lower equilibrium CD quantities and unambiguously lower prices.
	B.	lower equilibrium CD quantities and either higher or lower prices.
	C.	lower equilibrium CD quantities and unambiguously higher prices.
	D.	higher equilibrium CD quantities and either higher or lower prices.

Answer 1

As can be seen in the diagram that initial equilibrium is determined by the intersection of D and S curve of the CD. The equilibrium price is P and quantity is Q but when the demand decreases due to an increase use of MP3 players and streaming services, then demand curve shift leftward. When there is an increase in the cost of the CD production, so the supply of the CD decrease. Therefore the supply curve shifts leftward. As a result, equilibrium price may decrease, increase or remains same but quantity of CD decreases.

Hence option B is the correct answer.