Exercise on Shifts in Demand and Supply: Solution-3 (Event C)

Questions: 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.

Event C: Events A and B both occur.

  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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Date of last modification: 2019