You are the manager of a midsized company that assembles personal computers. You

Question

You are the manager of a midsized company that assembles personal computers. You purchase most components-such as random access memory (RAM)-in a comptetitve market. Based on your marketing research, consumers earnings over $75,000 purchase 1.3 times more RAM than consumers with lower incomes. One morning, you pick up a copy of The Wall Street Journal and read an article indicating that a new technological breakthrough will permit manufacturers to produce RAM at a lower unit cost. Based on this information, what can you expect to happen to the price you pay for radom access memory?
Would your answer change if , in addition to this technological breakthrough, the article indicated that consumers incomes are expected to grow over the next two years as the economy pulls out of recession? Explain.

Explanation / Answer

If RAM chips get cheaper, that pushes the supply curve to the right, decreasing price and increasing quantity. If consumer's incomes increase, that pushes the demand curve to the right, increasing price and quantity. So, if only the supply effect happens, then we know that prices will decrease. But if both effects occur, the price change is uncertain because we do not know which shift was larger.

Related Questions

Navigate

• Browse (All)
• Browse Y
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.