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Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509

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BuyFindarrow_forward

Principles of Macroeconomics (Mind...

8th Edition
N. Gregory Mankiw
Publisher: Cengage Learning
ISBN: 9781305971509
Chapter 4, Problem 5PA
Textbook Problem
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Over the past 40 years, technological advances have reduced the cost of computer chips. How do you think this has affected the market for computers? For computer software? For typewriters?

To determine
Change in price of related goods and the demand-supply market.

Explanation of Solution

Figure 1 illustrates the change in equilibrium due to shift in the supply curve.

The technology improvement increases the supply of computers, because; the reduction in the cost of production of computer chips results in the reduction in the input prices for computers. This is illustrated in Figure 1, where the horizontal axis represents the quantity demanded and supplied of computers while the vertical axis represents the price. This reduction in prices will result in an increase in supply causing it to shift to the right; but the demand remains unaffected. The eventual result is a decline in the equilibrium price of computers and an increase in the equilibrium quantity.

Figure 2 illustrates the change in equilibrium due to shift in the demand curve.

Figure 2 illustrates the effect on market of computer software due to changes in the market of computers. The vertical axis in Figure 3 represents the price of software and the horizontal axis represents the quantity...

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