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

The most likely explanation for the observed outcome of more computers sold at lower prices in the computer market is option c (A rise in supply). An increase in supply results in more computers being produced and sold at lower prices. The demand and supply diagram for this scenario shows that with the shift in supply (from S1 to S2), the quantity of computers (Q) increased from Q1 to Q2, and the price (P) decreased from P1 to P2.

Step-by-step solution

Understanding the options

First, let's look at each option and see what it represents. Option a: A rise in demand represents more people wanting to buy computers at every price level. Option b: A fall in demand means fewer people are interested in buying computers at all price levels. Option c: A rise in supply is when manufacturers produce more computers at every price level. Option d: A fall in supply is when manufacturers produce fewer computers at every price level. As we need to find the outcome that results in more computers sold and lower prices, let's go through each option step by step.

Analyzing Option a - A rise in demand

If there is a rise in demand, more people would want to buy computers, so the demand curve would shift to the right. However, this would lead to an increase in prices, as producers can sell computers at higher prices due to increased demand. Since the outcome we are looking for includes lower prices, option a is not the correct answer.

Analyzing Option b - A fall in demand

With a fall in demand, the demand curve would shift to the left, indicating that fewer people are interested in purchasing computers. This would cause a reduction in the quantity of computers sold, which contradicts the outcome we are looking for. Therefore, option b is not the correct answer.

Analyzing Option c - A rise in supply

In the case of a rise in supply, manufacturers would produce more computers at every price level. The supply curve would shift to the right. This increase in the supply of computers would result in more computers being sold, and the prices would decrease, as producers would need to lower prices to sell this excess supply of computers. This outcome matches the one we are looking for, so option c is the most likely explanation.

Analyzing Option d - A fall in supply

A fall in supply would cause the supply curve to shift to the left, indicating that fewer computers are available at each price level. As a result, there would be a shortage of computers, and prices would increase to balance this. This result contradicts the outcome we're looking for, so option d is not the correct answer.

Sketching the demand and supply diagram for Option c

Now, let's sketch a demand and supply diagram for option c (A rise in supply) to visualize how this option leads to our desired outcome: 1. Draw two axes, with the horizontal axis representing the quantity of computers and the vertical axis representing the price of computers. 2. Draw an initial demand curve (D1) with a negative slope, indicating that as the price decreases, the quantity demanded increases. 3. Draw an initial supply curve (S1) with a positive slope, displaying that as the price increases, the quantity supplied increases. 4. Mark the initial equilibrium point (E1) where the demand and supply curves intersect, representing the initial price (P1) and quantity (Q1) of computers. 5. Now, draw a new supply curve (S2) to the right of S1, representing the increase in supply. 6. Mark the new equilibrium point (E2) where the new supply curve (S2) intersects the demand curve (D1), representing the new price (P2) and quantity (Q2) of computers. 7. Observe that with the shift in supply (from S1 to S2), the quantity of computers (Q) increased from Q1 to Q2, and the price (P) decreased from P1 to P2. In conclusion, option c (A rise in supply) is the most likely explanation for the observed outcome of more computers sold at lower prices in the computer market.