Question

Consider the market for smartphones. Explain whether the following events would cause an increase or a decrease in supply or an increase or a decrease in the quantity supplied. Illustrate each, and show what would happen to the equilibrium quantity and the market price.

a. The price of touch screens used in smartphones declines.

b. The price of machinery used to produce smartphones increases.

c. The number of manufacturers of smartphones increases.

d. There is a decrease in the market demand for smartphones.

Short answer

a. Supply increases

b. Supply falls

c. Supply rises

d. Supply remains same

Step-by-step solution

Step1. Introduction

Supply refers to the overall supply curve or the supply function which establishes the relationship between price and quantity supplied.

Quantity supplied is a single point corresponding to a price which indicates how much quantity is supplied.

Step2. Explanation

a. Supply increases as cost of production falls.

Equilibrium price would fall and quantity rise.

b. Supply falls as cost of production rises.

Equilibrium price would rise and quantity fall.

c. Supply rises as the number of suppliers increase.

Equilibrium price falls and quantity rise.

d. Supply remains same as the demand changes and supply won't adjust immediately.

Since demand falls, equilibrium price and quantity falls.