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Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050

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BuyFindarrow_forward

Principles of Microeconomics

7th Edition
N. Gregory Mankiw
ISBN: 9781305156050
Textbook Problem

The cost of producing flat-screen TVs has fallen over the past decade. Let's consider some implications of this fact.

a. Draw a supply-and-demand diagram to show the effect of falling production costs on the price and quantity of flat-screen TVs sold.

b. In your diagram, show what happens to consumer surplus and producer surplus.

c. Suppose the supply of flat-screen TVs is very elastic. Who benefits most from falling production costs—consumers or producers of these TVs?

Subpart (a):

To determine
The impact of falling prices of flat screen TVs.

Explanation

When the cost of producing flat screen TVs falls significantly, it will lead to an increase in the supply of the Flat screen TVs in the economy. As a result of this, the supply curve of the flat screen TVs will shift towards the right, which indicates increased supply. Thus, the price level of the flat screen TVs will fall and the quantity demanded will increase. This can be illustrated as follows:

Subpart (b):

To determine
The impact of falling prices of flat screen TVs.

Subpart (c):

To determine
The impact of falling prices of flat screen TVs.

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