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It swept through the tech world like a title wave that AT&T stop selling iphones online in New York city of that cage just a week after a nationwide blackberry outage so what's happening are we putting too many of these smartphones on dumb networks for this week's tech Tuesday we check in with frosted some of the chief analyst Jerry pretty Jerry good to see you so first of all what happened we know more about what happened with AT&T in the iphone thing
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well we've had a situation growing David three percent of the iphones consume forty percent of the entire network and it was destined that we were going to finally put a chokehold on the capacity and so it's it's a serious situation last week blackberry had the same problem so what's the solution?
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Well the networks have plans to spend over $15 billion to expand their networks i think that we didn't expect that the smartphone users the new blackberry the new iphone users would consume so many applications we're seeing over a billion downloads of apps on the App Store and people are saying gee I can do so many things with this so they're consuming more and more and it's it's it's a challenge for these network providers
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well and chariots it's not just the iphone or or what is this is the sprint that we got here going and it's not just these phones it'sit's we just talked about the tablets the itablet switch might be another addition to the network so we've got only gonna make it worse we got a whole new group of products coming online what happens then?
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Well we've got a new demand system coming in if Apple does this tablet it's another billion-plus business for them but it's also a new challenge going on for the network because it's going to consume media even more than a phone would because if you hold it vertical sure it's a book but then you turn horizontal and it becomes a media player movies music we're going to see a lot more demands on these net networks and I hope the networks will step up and give us more capacity
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well Jerry are you know Moore's law that says that you know you double your capacity for your computer capacity every 18 months or so and and half the price it is the same not true for the network's is that only true for the devices and not for the network's yeah it's much more true for the devices because you can build more and more into the little silicon wafers what you having a network you have to build big towers and base stations and
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it takes billions of dollars in a lot of time there working feverishly on it when I talk to the network's it's nothing more they want them to build their capacity and let people use it more and more but right now we're getting a little bit ahead because these popular smartphones are being consumed and people love them and they're consuming a lot of capacity so we're going to have to just take a deep breath and wait a while as much as we'd love to get these
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products online? Yeah yeah I think I think that God you know maybe we are seeing the iphone go on all the networks to quickly because it might show called them as well but I think we're going to see more smartphone devices you're going to see them pervasive and we're going to eventually see the network's capacity increase and offloading some of the network onto Wi-Fi alternate networks that will help bring this media and make these devices
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fun and easy use in 2010. I think you hit upon you can't hold back progress I mean these things are just going to keep going on as long as smart minds are thinking about it but the crisis is going to force other networks to appear that we don't know about now Jerry birdie got to leave it at that from frost & sullivan great to see again Jerry thank you have a good new year.
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Smartphones, mobile phones with more advanced computing capabilities and connectivity than regular mobile phones, came onto the consumer market in the late 90s, but only gained mainstream popularity with the introduction of Apple's iPhone in 2007. The iPhone revolutionized the industry by offering customer friendly features such as a touch screen interface and a virtual keyboard. The first smartphone running on Android was introduced to the consumer market in late 2008.
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The smartphone industry has been steadily developing and growing since then, both in market size, as well as in models and suppliers. By 2017, over a third of the world's population is projected to own a smartphone, an estimated total of almost 2.6 billion smartphone users in the world. Although Apple once had a commanding share of the smartphone market, other companies such as Samsung and Nokia introduced their own smartphones and followed Apple in developing apps.
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The competition among smartphone sellers is an example of how the market responds to changes in consumer tastes. Competition increases consumers - choices of available products and lowers the prices consumers pay for those products.
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A perfectly competitive market is a market that meets the conditions of (1) many buyers and sellers, (2) all firms selling identical products, and (3) no barriers to new firms entering the market. The main factor in most consumer decisions is the price of the product. When we discuss demand, we are considering not what a consumer wants to buy, but what a consumer is willing and able to pay.
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A demand schedule is a table that shows the relationship between the price of a product and the quantity of the product demanded. The amount of a good or service that a consumer is willing and able to purchase at a given price is called the quantity demanded. Economists use a graph to plot the numbers from a demand schedule as a demand curve, which shows the relationship between the price of a product and the quantity of the product demanded.
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Market demand curves show the product demand by all the consumers of goods or services. The demand schedule, the table, and the demand curve both display the same information, only one is tabular and the other graphical.
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The ceteris paribus, or all else equal condition is the requirement that when analyzing the relationship between two variables, such as price and quantity demanded, other variables must be held constant. If we allowed a variable other than price to change that might affect the willingness of consumers to buy a product, consumers would change the quantity they demand at each price. We can illustrate this result by shifting the market demand curve.
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The law of demand is the rule that, holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease. The law of demand holds for almost every market demand curve. It is not enforced by the economics police, it is how open markets performs in response to consumer choice.
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Think of your own buying habits: you would rent more movies if the price went down. You would rent fewer movies if the price went up. You will hear often in this class about the downward sloping demand curve. It is as constant as wet water and talkative economists.
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The law of demand is explained by the substitution and income effects of a change in price. The substitution effect refers to the change in the quantity demanded of a good resulting from a change in price that makes the good more or less expensive relative to other goods that are substitutes. This might be your willingness to purchase a less expensive Android smartphone when the cost of your favorite I-Phone increases. To some extent, they are substitutes for each
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other with price being the leveler between them. The income effect is the change in the quantity demanded of a good that results from the effect of a change in the good's price on consumers' purchasing power. When the price of a good falls, the increased purchasing power of consumers' incomes will usually lead them to purchase a larger quantity of the good. The substitution and income effects happen simultaneously whenever a price changes.
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A change in demand refers to a shift in the demand curve. A shift will occur if there is a change in one of the variables, other than the price of the product that affects the willingness of consumers to buy the product. A change in quantity demanded refers to a movement along the demand curve as a result of a change in the product's price. An advertising campaign can influence consumers' demand for a product. Economists would say that the advertising campaign has affected consumers' tastes for
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the product. Taste is a catch-all category that refers to many subjective elements that enter into a consumer's decision to buy a product. When consumers' taste for a product increases, the demand curve will shift to the right, and when consumers' taste for a product decreases, the demand curve for the product will shift to the left.
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Other than price, the five most important variables that affect demand are: income, prices of related goods, tastes, population and demographics, and expected future prices. Changes to each factor causes consumer decisions to change. You might think of your decision to purchase something like new jeans is influenced by how you spend your money when you need to first cover other obligations like rent, food, and books for class.
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Your decisions first pivot on your income and then migrate to other factors like your personal preferences of tastes and price.
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The income that consumers have to spend affects consumers' willingness and ability to buy a good. A normal good is a good for which the demand increases as income rises and decreases as income falls. This includes most of us with things like celebrating a new job by going out to dinner as a group at a nice restaurant. An inferior good is a good for which the demand increases as income falls and decreases as income rises.
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These are things like shopping for winter clothes at Goodwill or the Salvation Army. Loads of people do this when economic times are tight, but when that new job comes along their demand for Salvation Army clothes decreases in favor of the better known fashion outlets. Run a quick confirmation, what type of good are smartphones? Hmmm. Yup, they are Normal goods.
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Substitutes are goods and services that can be used for similar purposes. When two goods are substitutes, the more you buy of one, the less you will buy of the other. It is seen as the fast foods you sometimes consume, vehicles you drive, and even the apartment you rent versus the dorm room you live in. An increase in the price of a substitute causes the demand curve for the good of interest to shift to the right.
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It means that when the price of the Whopper increases consumers demand more Big Macs. A decrease in the price of a substitute causes the demand curve for a good to shift to the left.
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Complements are goods and services that are used together. When two goods are complements, the more you buy of one, the more you will buy of the other. A decrease in the price of a complement causes the demand curve for a good to shift to the right. An increase in the price of a complement causes the demand curve for a good to shift to the left.
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When E-readers first entered the US market, they took on an aggressive growth pattern peaking by about 2011, then sales went through a steady decline. This decline was initiated by the introduction of Tablets that served much of the same services as E-readers, and included so many more features. Tablets became a substitute for E-readers. As the demand for Tablets climbed, the demand for E-readers fell. Tablets became a substitute for E-readers.
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An advertising campaign can influence consumers' demand for a product. Economists would say that the advertising campaign has affected consumers' taste for the product. Taste is a catch-all category that refers to many subjective elements that enter into a consumer's decision to buy a product. When consumers' taste for a product decreases, the demand curve will shift to the left, and when consumers' taste for a product increases, the demand curve for the product will shift to the right.
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Demographics refer to the characteristics of a population with respect to age, race, and gender. As the demographics of a country or region change, the demand for particular goods will increase or decrease because different categories of people tend to have different preferences for those goods.
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Expected future prices also affect current demand. For example, if enough consumers become convinced that houses will be selling for lower prices in three months, the demand for houses will decrease now. If enough consumers become convinced that the price of houses will be higher in three months, the demand for houses will increase now as some consumers try to beat the expected price increase. In 2000, I returned part-time to the USA after living in the Russian Federation.
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With my family, we outfitted our new home with appliances and fittings. We found a new for me replacement to traditional incandescent light bulbs: florescent bulbs. Lighting effects were not the same, even though energy use was lower. We liked the lighting effects of the traditional incandescent bulbs so we sought those supplies. We found articles announcing that the US government would soon issue a law preventing the manufacture and sale of the traditional bulbs.
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In a bit of overreaction, we purchased a lot of the going-out-of-stock traditional bulbs. We would have the lighting we wanted! Soon, the halogen bulbs were replaced by LED bulbs with a more familiar lighting effect. Energy use was a lot lower with this new generation bulbs. But, traditional bulbs are still being sold in stores. There was no law created to stop traditional incandescent light bulb manufacture and sale.
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Those stories were fabricated to increase demand for a current product type based on preferences, price and quality.
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You can imagine how producers may want to limit news about new upgrades to their products anticipating that consumers may reduce current demand because of a better product coming to market in the near-future. This is a substitute product, management strategy. It is consumers learning about a higher quality product coming to market or near-term prices falling because of new updates, the demand for the current models will drop. Apple takes the approach to just sell what is on the shelf right now.
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When the new phone hits the market, it becomes the hot topic.
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Now we take a close look at movements along the demand curve or a shifting of the curve. A change in quantity demanded refers to a movement along the demand curve as a result of a change in the product's price. When looking at a change to one of the variables on the graph, it is called an endogenous variable change. It moves along the demand curve. A change in demand refers to a shift in the demand curve. A shift will occur if there is a change in one of the variables, other than the price
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of the product that affects the willingness of consumers to buy the product. Since the changed variable is from outside the graph it is called an exogenous variable.
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The most important of the variables that influence the willingness and ability of firms to sell a good or service is price. Quantity supplied is the amount of a good or service that a firm is willing and able to supply at a given price. Holding other variables constant, when the price of a good rises, producing the good is more profitable and the quantity supplied will increase. When the price of a good falls, the good is less profitable and the quantity supplied will decrease.
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Devoting more resources to the production of a good results in increasing marginal costs. With higher marginal costs, firms will supply a larger quantity only if the price is higher.
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A supply schedule is a table that shows the relationship between the price of a product and the quantity of the product supplied. A supply curve is a curve that shows the relationship between the price of a product and the quantity of the product supplied. This is the same approach we used to talk about the Demand Schedule and Demand Curve. In the case of the Supply Curve, it is upward sloping to the right. Always ask yourself, "who supplies goods and services?"
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It is the suppliers of the products and the more money suppliers can make by selling their products, the more they will produce. For $100 each phone, suppliers may only make 8 million smartphones, but at $300 each, producers would create 12 million per week. This is the rational thinking supplier in action.
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The law of supply is the rule that, holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied. If only the price of a product changes, there is a movement along the supply curve, which is an increase or decrease in the quantity supplied.
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If any other variable that affects the willingness of firms to supply a good changes then the supply curve will shift; this results in an increase or decrease in supply. When firms increase the quantity of a product they wish to sell at a given price, the supply curve shifts to the right. When firms decrease the quantity of a product they wish to sell at a given price, the supply curve shifts to the left.
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The most important variables that shift market supply are: prices of inputs, technological change, prices of substitutes in production, the number of firms in the market, and expected future prices. The factor most likely to cause a supply curve to shift is a change in the price of an input.
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If the price of an input rises, the supply curve will shift to the left. If the price of an input declines, the supply curve will shift to the right. This might be seen when the cost of phone processor chips climbs quickly causing smartphone manufacturers to increase the prices they charge for new smartphones. Conversely, a drop in plastic costs will decrease the end products' cost. Both situations caused shifts in the supply curves.
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Technological change is a positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs. A positive technological change will shift a firm's supply curve to the right; a negative technological change will shift a firm's supply curve to the left.
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Alternative products that a firm could produce are called substitutes in production. If the price of a substitute in production increases, the supply of the product will shift to the left. If a firm expects that the price of its product will be higher in the future, the firm has an incentive to decrease supply in the present and increase supply in the future. When firms enter a market, the supply curve shifts to the right; when firms exit a market, the supply curve shifts to the left.
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Expected future prices can also affect demand. For example, if enough consumers become convinced that houses will be selling for a lower price in three months, the demand for houses will decrease now. If enough consumers become convinced that the price of houses will be higher in three months, the demand for houses will increase now as some consumers try to beat the expected price increase. Think about the products this really targets.
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You may be able to store a warehouse of smartphones, but could you do this with crates of tomatoes?
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You get the idea, they need to be non-perishable goods.
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Some timing issues pivot on geopolitical situations. Warner Brothers delayed the release of Collateral Damage with Arnold Schwarzenegger because of the terrorist attacks in the USA on 9/11. Warner Brothers correctly anticipated that viewership of this type of movie would be greater after a decent lapse in time when people saw the crashing visions of the world trade center and burning pentagon building.
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A change in quantity supplied refers to a movement along the supply curve. as a result of the change of the product's price. Along the curve movement means we have an endogenous variable change. A change in supply refers to a shift in the supply curve. The supply curve will shift when there is a change in one of the variables, other than the price of the product, that affects the willingness of suppliers to sell the product. This is another example of an exogenous variable.
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The purpose of markets is to bring buyers and sellers together. The interaction of buyers and sellers in markets results in firms producing goods and services most desired by consumers. Market equilibrium is a situation in which quantity demanded equals quantity supplied. A competitive market equilibrium is a market equilibrium with many buyers and many sellers. We spend a lot of time looking at graphs of these curves. Their intersection is the sweet-spot called "equilibrium".
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This intersection shows where price and quantity are found when the markets are stable. Equilibrium shows what quantities are expected at the indicated price.
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A surplus is a situation in which the quantity supplied is greater than the quantity demanded. When there is a surplus, firms have unsold goods piling up, which gives them an incentive to increase their sales by cutting the price. Cutting the price simultaneously increases the quantity demanded and decreases the quantity supplied. Equilibrium will eventually be achieved.
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A shortage is a situation in which the quantity demanded is greater than the quantity supplied. When a shortage occurs, some consumers will be unable to obtain the product, and firms will realize they can raise the price without losing sales. A higher price will simultaneously increase the quantity supplied and decrease the quantity demanded. At a competitive market equilibrium, all consumers willing to pay the market price will be able
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to buy as much as they want, and all firms willing to accept the market price will be able to sell as much of the product as they want. There will be no reason for the price to change unless either the demand curve or the supply curve shifts. A shortage is not scarcity. Remember, Buzz Lightyear doll shortage in 1995 was because shortsighted retailers did not order enough dolls to meet demand. That defined the shortage situation.
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In the USA, we live in a Free Enterprise Economy where we have freedom of choice to buy what we want and how much we want, based on our ability to purchase the scarce resources available. Similarly, businesses can produce the products they are best suited to provide and at the cost guaranteed through competition. Neither consumers nor firms can dictate what the equilibrium price will be. No firm can sell anything at any price unless it can find a willing buyer, and no consumer
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can buy anything at any price without finding a willing seller. In a market situation called Perfect Competition, there are many buyers and many sellers. All market participants exercise free will, but none are Price Setters. Perfect Competition includes markets for goods such as carrots, corn, and potatoes sold in the local markets. If a seller increases price too high, buyers will go to the next store to buy them at the market price.
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By the same consideration, buyers cannot step into Walmart and negotiate a lower price for a bag of russets. All participants are price takers in Perfect Competition.
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As we explore these tables and figures, focus on how they are formed and react to changes. Develop reasoning considerations to confirm that buyers "Demand" goods and sellers "Supply" goods. Always keep them straight in your mind and remember the "downward sloping to the right Demand", and the "Upward Sloping to the right Supply". Trust me on this one, remembering this will serve you well.
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When the market supply curve shifts to the right, there will be a surplus at the original equilibrium price. The surplus is eliminated as the price falls to the new equilibrium and the quantity rises to a new equilibrium. If existing firms exit the market, the supply curve will shift to the left, causing the equilibrium price to rise and the equilibrium quantity to fall. Really, at this stage of our considerations, we can only predict directions of the shifts
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in price and quantity, not specific dollar amounts. At least, not yet.
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Consider the effects of an exogenous variable, like consumer incomes - it is not shown on the graph so income increases will shift the demand curve to the right. We call smartphones a Normal good because as incomes go up, consumer demand also goes up. A new intersection with the supply curve is identified where a higher price is predicted and a higher quantity is demanded at the new price.
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A series of Demand curve scenario are presented on the left side column with Supply curve changes along the column headings. If Demand is held constant while the supply curve shifts to the right, we can predict what we saw two figures earlier, that quantity will increase and price will fall. Conversely, we can consider a supply curve shifting to the left and the result being as we just most recently saw on the last graph that quantity will decrease and price will increase.
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Right here, I ask you to recreate this table on paper in front of you. For you to really get these ideas, you need to stop the video and fill the four predicted outcomes you would expect to see. Draw the graphs, label price on the vertical axis and quantity on the horizontal. Create your supply and demand lines, pencil in the shifts indicated in each instance.
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Really, you need to be able to complete this table without me showing you the answers to each scenario. You want to use the next 30 seconds to fill the table and stop the video if you need some more time. This is the time you really want to spend for yourself. Do it, make it happen.
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[You know the Jeopardy theme music... right?]
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OK, so now we get to check a couple of these scenario. Consider the market for smartphones in general, as the market has grown so have the number of firms making these gadgets of high demand. The Supply curve shifts to the right. At the same time, an economic expansion has been in effect and incomes have risen. Because smartphones are a normal good the demand for smartphones also shifted to the right.
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We get a new equilibrium set at the new intersection of both shifted lines. There is a bit of ambiguity resulting from this graph, because I have shown demand shifting more than supply shifted. This scenario shows both equilibrium price and equilibrium quantity increasing.
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What if incomes rose only slightly and the number of suppliers went up drastically more? It could result in price dropping and quantity increasing. Consider that even if incomes did not increase, but the number of suppliers did increase how price would still be predicted to drop and quantity also increase.
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I hope you can see this table completed now in comparison to what you created a few minutes ago. See if your answers are consistent with these. Really, you need to nail these responses knowing that some of them give firm increase or decrease responses, while others will be a range of options based on the magnitude of the shift.
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Blu-ray players entered the US market in about 2006. It crushed the market previously dominated by VHS players and then more recently DVD players. Blu-ray was the new technology with higher video quality and audio performance. It entered the market during the expansion of the USA economy at about $800 per unit. Over the course of seven years, price fell to about $95 per unit. Why did this price drop happen? Price drops were a response to a dramatic increase in suppliers of the units.
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How would you show this on a graph?
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This one is a drastic supply curve shift to the right. It happened not only because of an increase in suppliers but also a drop the price of electronic components used in manufacture. Rarely are curve shifts this pronounced, but drawing them out helps to convey what happens in the markets.
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If both the demand and supply curves increase, whether the equilibrium price in a market rises or falls over time depends on whether demand shifts to the right more than supply does. When demand shifts more than supply, the equilibrium price rises. When supply shifts to the right more than demand, the equilibrium price falls. When a shift in the supply curve causes a change in equilibrium price, the change in price does not cause a further change in demand.
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This is an important consideration of these facts. There is a difference between an increase in suppliers of the market versus a change of demand. If the change in demand happens because prices went down, then there is a movement along the demand curve to the point of new intersection with the shifted supply curve. The demand curve displays what quantity consumers will demand at all price points. Find the new equilibrium point and your solution will be there waiting for your discovery.
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When describing changes to supply and demand curves be very specific about curves shifting to the right and shifting to the left. They do not shift up and down: those terms will confuse you and muddle your best understanding. You might see a movement up or down a demand curve but that is a movement along the curve, not a shift of it. If you keep your focus on these terms and apply them accurately each time, you will not confuse yourself. That is a monumental accomplishment all by itself!
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