Last Updated 26 Jan 2021

Demand and Supply Curves

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We have a certain commodity, `pure Malaysia Laptop’, whose market we are going to analyze. Assume that exogenous (external) forces are equal in magnitude, while supply–demand curves are unitary elastic. Given a certain event/scenario, (a) analyze the curve/s affected, shifts or movements and the direction, and (b) effect to equilibrium price (P*) and equilibrium quantity (Q*) Scenario 1 a. Prices of optical drives suddenly increase The production cost has increased so the supply decreases and eventually the price go up.

The supply curve shifts to the left. b. A new market-standard operating system is released to the market but costs at least 50% higher than the previous edition This issue is considered another production cost so the supply curve shifts to the left. The supply decreases and price goes up. c. News spread that local laptops were contaminated with melamine Demand decreases because people buy less due to the news so the demand curve shifts to the left and the Q and P both decrease. d.

Video chatting and internet-on-the-go become fad New technology makes people buy more of the product so demand increases and as a consequence the demand curve shifts to the right and price and quantity both increases. Scenario 2 a. China laptop manufacturers were permitted to enter the Malaysian market Cheaper products attract consumers, so the demand for our product decreases. The shift in the demand curve goes to left and the P and Q both decreases. b. Average desktop computer prices have plunged to all-time lows

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If desktop computers become cheaper the demand for laptops decreases so the demand curve shifts to left and eventually the P and Q decrease. c. New taxes were imposed to laptops sales (per unit tax) Imposing new taxes to laptops is additional cost for the production. so it affects the supply and the supply curve shifts to left. so the P increases and Q decreases. d. A recession/economic downturn cause the income of consumers to decline and cause the prices of laptop parts to increase

When consumer’s income decreases, the demand goes down and the demand curve shifts to the left. On the other hand the prices of laptop parts increases and that makes the production costs to increase so the supply decrease and the supply curve shifts to left. So the quantity decreases while we have an ambiguous equilibrium price. Scenario 3 a. Biggest local laptop manufacturer suddenly become bankrupt and the government gives subsidy to consumers to purchase `educational and computer-literacy’ related goods

By the biggest local laptop manufacturer going bankrupt, our company’s supply goes up and eventually the price goes up. The demand curve shifts to the left. So the Q decreases. b. New production techniques were adopted by local laptop manufacturer and prices of inputs in the production of desktop computer decline significantly When the prices for laptops decease the demand goes up and as a consequence the demand curve shifts to the right so the price and quantity increase.

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