Question

Draw a graph that shows how each of the following events will affect the demand, supply, equilibrium price, and equilibrium quantity of compact discs. Note: Be sure to identify whether or not the demand and supply curves shift, or whether you are moving along the demand and supply curves. Assume that the average price of CD is $20 and that 100,000 CDs are sold each week.
a. The price of DVD audio discs decreases (DVD audio discs can be played in DVD players so the music can be heard in five- speaker surround sound)
b. The supreme court declares sharing music files over the internet legal and the government is no longer able to prevent music file sharing.
c. The technology used to manufacture CDs improves, decreasing the cost of producing a CD.
d. An economic boom causes wages for workers to increase in all sectors of the economy, so CD consumers have more money but CD producers have to pay more to workers.
e. The use iTunes becomes widespread.

Answer 1

Law of Demand- The law of demand describes the inverse relationship between price and quantity demanded. All else equal, as the price of the good rises,the quantity demanded of a good will fall. As the price of the good fall the quantity demanded rises . This implies that the demand curve will be downward sloping.

(a) As refering to the Law of demand the price of DVD audio disc decreases the demand for the same will increases.(fig.1 graph shows the demand rises)

(b) The music file sharing on internet is a substitute of CDs. Here both demand and supply decrease, there will be a decrease in the equilibrium output, but the effect on price cannot be determined. If both demand and supply decreases consumers wish to buy less and firms wish to supply less, So, output will fall.As demand decreases supply goes down shown in the (fig. 2 graph shows the demand decreases)

(c) The improvement in technology and the consequent decline in production cost will increase in supply and reduce the price of the goods which will lead to increase in demand. Changes in technology are one of those factors that influence the positions and movements of g3emand and supply curves. If the cost of any factor of production- labor, raw materials, equipment decreases , the quantity that producers are willing (and able) to supply at a given price increases ... Concersely , if production cost increases the quantity supplied at a given price will decrease.(fig.3 graph shows increase in demand and supply)

(d) Markets for labor have demand and supply curve , just like markets for goods. The law of demand applies in labor mrket this way: A higher salary or wage that is , a higher price in the labor market leads to a decrease in the quantity of labor deamnded by employer, while a lower salary or wage leads to an increase in the quantity of labor demanded. As the cost of production increasses the price of product increases which leads to lower the demand and lower the supply of product as well. (fig.4 graph shows decrease in supply and demand due to increase in cost of production)