Question

Garcia has the following desires for music downloads: 0 if the price is higher than $2; 1, if the price is $2; 2, if the price is $1.50; 3, if the price is $1; 4, if the price is $0.50.

            Maria has a download desire of 0 if the price is higher than $2.50; 1, if the price is $2.50; 2, if the price is $2.00; 3, if the price is $1.50; 4, if the price is $1.00; 5, if the price is $0.50.

            Spotiplay has a desire to supply 7 if the price is higher than $2.50; 5, if the price is $2.50; 4, if the price is $2.00; 3, if the price is $1.50; 2, if the price is $1.00; 1, if the price is $0.50.

            NewPlay has a desire to supply 6 if the price is higher than $2.50; 5, if the price is $2.50; 4, if the price is $2.00; 2, if the price is $1.50; 1, if the price is $1.00; 0, if the price is $0.50.

a) Plot the supply and demand interaction. What is the equilibrium price and quantity?

b) If downloads are a normal good, what is the general amount of Garcia’s downloads; more or less at each given price?

c) If the access cost of internet bandwidth decreases, what is the general amount of downloads NewPlay will make available; more or less at each given price?

d) If the government comes in and mandates a maximum price of $1.00 per download, will there be a shortage or a surplus?

Answer 1

The demand and supply schedule of individuals and market are given in the following attached image file :

Answer to Part a :

Answer to Part b :

If songs/music are normal goods, as price rises Garcia will demand lesser and if price falls Garcia will demand more. On the other hand, as seeing that normal goods are dependent on the income of the consumer, a rise in income of Garcia will result in more demand of music at each given prices and a fall in income of Garcia will result in less demand of music at each prices.

Answer to Part c :

If access cost of bandwidth decreases, it will decrease the cost of production for Newplay and hence at each given prices Newplay will supply more. Because at the same costs Newplay will be able to produce and supply more for downloads.

Answer to Part d :

If the maximum price of songs download is set at $1.00 then by looking at the market demand and supply schedule we can see that demand at $1 will be 7, while supply will be 3. Hence, a shortage of downloads will take place if price is set at $1.00.