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The two accompanying diagrams show supply and demand curves for two substitute commodities: regular cell phones and smartphones. On the right-hand diagram, show what happens when rising raw material prices make it costlier to produce regular cell phones. On the left-hand diagram, show what happens to the market for smartphones. Quantity Smartphones (a) Quantity Regular Cell Phones (b)

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Microeconomics: Principles & Policy

14th Edition
William J. Baumol + 2 others
Publisher: Cengage Learning
ISBN: 9781337794992

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Section
BuyFindarrow_forward

Microeconomics: Principles & Policy

14th Edition
William J. Baumol + 2 others
Publisher: Cengage Learning
ISBN: 9781337794992
Chapter 4, Problem 7TY
Textbook Problem
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The two accompanying diagrams show supply and demand curves for two substitute commodities: regular cell phones and smartphones.

  1. On the right-hand diagram, show what happens when rising raw material prices make it costlier to produce regular cell phones.
  2. On the left-hand diagram, show what happens to the market for smartphones.

Chapter 4, Problem 7TY, The two accompanying diagrams show supply and demand curves for two substitute commodities: regular , example  1

Quantity Smartphones

(a)

Chapter 4, Problem 7TY, The two accompanying diagrams show supply and demand curves for two substitute commodities: regular , example  2

Quantity Regular Cell Phones

(b)

To determine

(a)

To show the effect of change in prices of raw material on the demand and supply of a good.

Explanation of Solution

In the given question two substitute goods are given that are regular cell phone and smartphones.

With a rise in the price of raw material used in the production of regular cell phones, the cost of production of regular cell phones rises and the supply of regular cell phones falls that lead to a leftward shift in supply curve.

The following diagram shows the changes in market for regular cellphones:

To determine

(b)

To show the effect of change in prices of raw material on the demand for the substitute good.

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