Answers: Shifts in Demand and Supply

In Brief:

This page illustrates answers to a question about Shifts in Demand and Supply.
This will give an opportunity understand further some
aspects of Economics in general but also Shifts in Demand and Supply in particular.
It focuses mainly when both events A and B occuring simultaneously.

Question:

Use the three-step method to analyze the effects of each event on the equilibrium price and quantity of game downloads.

  1. Event A: A fall in the price of USBs
  2. Event B: Sellers of games downloads negotiate a reduction in the royalties they must pay for each game they sell.
  3. Event C: Events A and B both occur.

Solution:

Event C: Events A and B both occur.

    Steps
  1. Both curves shift (see parts A & B).
  2. D shifts left, S shifts right.
  3. P unambiguously decreases.
    Effect on Q is ambiguous:
    The fall in demand reduces Q,
    the increase in supply increases Q.


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