Question

New technology improves production of home satellite dishes. At the same time, the price of cable tv Decreases. show GRAPH what will happen to equilibrium price and quantity of statellite systems. (ECON 2)

Answer 1

First of all, let's understand what an equilibrium price is. In layman's terms, the price at which market is in equilibrium also implies the quantity supplied is equal to quantity demanded.

According to the question, as the technology improves production of satellites that means the supply is increasing and at the same time the price of cable tv decreases, indicating an increase in the demand of the satellites. We will have to consider a case when changes in both the supply and demand take place.

When the demand and supply are in changing in the same direction, i.e. increasing here, the change in the equilibrium output can be determined but the effects on the equilibrium price cannot be determined. Understand it this way, if the demand and supply both are increasing, the consumers are willing to buy more and the sellers and willing to supply more, resulting in an increase in the quantities of the product. However, since the consumer is putting a high value on each input and the supplier is willing to put a small price on each unit, the effect on the equilibrium price will be determined by the relative size of the two changes.

The graphs are shown in the figure attached to the answer.