The price of a PC falls or the price of an MP3 download rises? (Draw the diagrams!)
What will be an ideal response?
A fall in the price of a PC decreases the demand for MP3 players because a PC is a substitute for an MP3 player. The demand curve for MP3 players shifts leftward. Supply remains unchanged. The price of an MP3 player falls and the quantity of MP3 players decreases.
A rise in the price of an MP3 download decreases the demand for MP3 players because an MP3 download is a complement of an MP3 player. The demand curve for MP3 players shifts leftward. Supply remains unchanged. The price of an MP3 player falls and the quantity of MP3 players decreases.
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A government-imposed restriction on the quantity of a specific good that another country is allowed to sell in the U.S. is
A) a regional trade bloc. B) an import quota. C) a voluntary import expansion. D) a voluntary restraint agreement.
Explain why foreign trade imbalances do not always create problems
Suppose that the country of Xenophobia chose to isolate itself from the rest of the world. Its ruler proclaimed that Xenophobia should become self-sufficient, so it would not engage in foreign trade. From an economic perspective, this idea would
a. make sense if Xenophobia had an absolute advantage in all goods. b. make sense if Xenophobia had no absolute advantages in any good. c. not make sense as long as Xenophobia had a comparative advantage in some good. d. not make sense as long as Xenophobia had an absolute advantage in at least half the goods that could be traded.
One reads the following in a newspaper: "Today the president and Congress agreed to impose new restrictive quotas on Japanese cars coming into the country." As a result, an economist would predict that the
A) supply of cars in the country will remain the same and the (average) price of cars will fall. B) supply of cars in the country will fall and the (average) price of cars will rise. C) supply of cars in the country will rise and the (average) price of cars will fall. D) demand for cars in the country will fall and the (average) price of cars will rise. E) demand for cars in the country will rise and the (average) price of cars will rise.