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Chapter 3: Q.45 (page 79)

Suppose both of these events took place at the same time. Combine your analyses of the impacts of the iPod and the tariff reduction to determine the likely impact on the equilibrium price and quantity of Sony Walkman-type products. Show your answer graphically.

Short Answer

Expert verified

Both of these occurrences shifted the demand curve for the Sony Walkman to the left. The introduction of the iPod, a direct competitor to the Walkman, would reduce Walkman demand, and a reduction in tariffs on iPod imports would drop the price of the iPod, further reducing Walkman demand. The demand curve has shifted to the left, implying that the equilibrium price and quantity will decline.

Step by step solution

01

Definition

Equilibrium price:

The equilibrium price is the only price at which consumers' and producers' plans coincide鈥攖hat is, when the quantity consumers want to buy of a commodity, quantity requested, equals the quantity producers want to sell, quantity supplied. The equilibrium quantity is the name given to this common quantity.

02

Explanation

The graph below depicts the increased demand for the Walkman following the release of the iPod and the subsequent fall in iPod pricing. Demand shifts to the left (red line), lowering the equilibrium price and quantity.

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