Question

Silicon is used for the manufacturing of semiconductor chips. At the end of last year a large new source of silicon has been discovered this year and the price of silicon has decreased by 15%. Semiconductor chips are used in devices, cell phones, gaming systems, and this year many new devices are now using chips. If you were drawing a supply and demand graph to illustrate the changes to the semiconductor market since last year, what would you say has happened to the supply and demand curves and the equilibrium price and quantity this year? The supply of semiconductor chips will increase shifting the curve to the right and the demand curve shifts to the left with equilibrium quantity decreasing and the equilibrium price increasing. o The supply curve will shift to the left and the demand curve shifts to the right with equilibrium quantity increasing and the equilibrium price increasing. Both the demand and supply of semiconductor chips will increase shifting the curves to the right with equilibrium quantity increasing but it is impossible to pinpoint the equilibrium price change.

Answer 1

Answer is both the demand and supply of semiconductor chips will increase shifting the curves to the right with equilibrium quantity increasing but it is imppossible to pinpoint the equilibrium price change.

The reason for this is-

(a) Supply curve shifts right because with the discovery the price of silicon has decreased which is used as a raw material for the semiconductor chips.So supply increases.

(b) Demand curve shifts right because many new device have started using chips this year so demand increases for this.

(c) the equilibrium quantity will increase with both supply and demand increasing but the increase in price will depend on elasticity of supply and Demand.