Question

1. For the first year, the average smart phone was approximately $250, and sales for that year were forecast to be 997.7 million. For the second year the average smart phone was approximately $200, and sales for that year were forecast to be 1401.3 million. A) Assume that the quantity of smart phones sold each year, q (in millions), is the linear function of price per smart phone, p (in US dollars). Write an equation for q as a function of p. B) Explain, in the context of sales, why it is reasonable that the slope of your linear function is negative. C) In the context of smart phone sales, what is the significance of the verticle axis intercept for your linear function?

Answer 1

Part (a)

Part b) There is bound to be a negative relationship between sales of luxury products like smartphones and price. The higher the price of smartphones the more people will shift demand to the future or buy new products. The slope of the demand curve for smartphones will this be negative.

Part c) The demand curve will have price on the vertical axis and quantity on the horizontal axis. This when quantity is 0 the price will be what the firms will earn when there is 0 demand. Similarly if quantity is on the vertical axis then it shows how much firms sell when the price is 0.

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