Question

The computer market in recent years has seen many more computers sell at much lower prices. What shift in demand or supply is most likely to explain this outcome? Sketch a demand and supply diagram and explain your reasoning for each.

(a) A rise in demand

(b) A fall in demand

(c) A rise in supply

(d) A fall in supply

Short answer

A rightward shift of the supply curve is more likely to explain the outcome.

Rise in demand refers to rightward shift of demand curve, and a fall leads to shift to left.

Similarly, for supply curve.

Step-by-step solution

Step1. Given information

Demand is the relationship between price and quantity demanded of a certain good or service.

Supply is the relationship between price and quantity supplied of a certain good or service.

Step2. Explanation

There will be a rightward shift of the supply curve as the price of computers is less in recent years and the supply increases.

In the above diagram E is the point of equilibrium where the demand D and supply S curves meet. The supply curve shifts from S to S1.

Step3. a. Rise in demand

A rise in demand shows a shift in the demand curve from D to D1 which results in a price rise from P to P1 and a quantity rise from Q to Q1.

Step4. b. Fall in demand

A fall in demand shows a shift in the demand curve from D to D1 which results in a price fall from P to P1 and a quantity fall from Q to Q1.

Step5. c. Rise in supply

A rise in supply shows a shift in the supply curve from S to S1 which results in a price fall P from P1 to and a quantity rise from Q to Q1.

Step6. d. Fall in supply

A fall in supply shows a shift in the supply curve from S to S1 which results in a price rise from P to P1 and a quantity fall from Q to Q1.