(For this topic I choose the cell phone market) Select a market for a product or...

(For this topic I choose the cell phone market)

Select a market for a product or service, then identify at least one critical determinant of demand or supply in that selected market and forecast a reasonable future change in the determinant. These "determinants" are also called "shifters" in our textbook. Explain the changes in equilibrium price and quantity you expect for that market. A graph is not required, however, it is helpful and illustrative that you fully comprehends this week’s material.

Expert Solution

I choose the call rates as an important determinant of the demand and supply in the cell phone market.

We all know that the cellphones and the call rates are complements to each other. If the call rates are high people will demand less amount of cell phones and if the call rates are reduced drastically, for example, say a new technology was launched which reduced the call rate a to tenth of what it is right now. The demand for cellphones will also increase.

Any increase in the rates will shift the demand curve to the left i.e. at the present rate of cellphones the demand will be less and this will decrease the equilibrium price and quantity. If the call rates decreased the demand curve will shift to the right which means more cell phones will be demanded at the given price. This will increase the equilibrium price in the short run with increased quantity.

In the graph above the demand and supply was at equilibrium at point "a". Due to a fall in the call rates, the demand curve shifted to higher price P1 and higher quantity Q1. The new equilibrium in the market is at "b".

Rahul Sunny answered 2 years ago

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