More and more devices are being introduced into the market that perform tasks similar to that of PCs, such as tablets and smartphones. At the same time, the price of computer chips to make high-end PCs continues to fall. What is the effect of the events on equilibrium price and quantity of high-end PCs?
A) Price falls continuously as does quantity sold.
B) Price rises then falls while quantity sold falls continuously.
C) Price falls continuously while quantity falls initially but then rises, recouping earlier losses.
D) Price falls continuously and quantity rises continuously.

Question

Quizplus · Accepted Answer

The introduction of substitute devices like tablets and smartphones decreases the demand for high-end PCs, initially reducing both price and quantity. However, as the cost of production (computer chips) falls, it becomes cheaper to produce PCs, which can lead to an increase in supply, eventually increasing the quantity sold.

More and More Devices Are Being Introduced into the Market