Question

Suppose that you have been collecting vintage lightning rods for the past 30 years. When you be- gan, finding lightning rods for sale meant drifting from town to town and antique store to antique store hoping that you would find a lightning rod for sale. The availability made possible by the In- ternet now means that you can easily find hun- dreds of lightning rods for sale at any given time. a. Draw a diagram showing how the invention and popularization of the Internet have caused the demand curve for lightning rods to shift. b. Suppose that the only change in the market for lightning rods is the change you described in (a). How would that change affect the equilibrium price of lightning rods and the equilibrium quantity of lightning rods sold?

Answer 1

Answer - In the last 30 years when you have been collecting vintage lightening rods, before advent of internet the demand pattern was different and let the demand curve be D_0^. After the invention of internet, availability of the vintage lightening rods has increased as you can easily find hundreds of such rods in internet at any given time without you drifting from one store to the other from one town to another. The demand curve shift occurs, when price remains the same and one of the five determinants stated below changes:

1.Income of buyer

2. Consumer trend and taste

3. Price of related goods

4. Expectations of future price, needs, supply etc

5.. The number of potential buyers [in case of aggregate demand only

As per our case, the advent of internet comes is the case of change in consumer trend. Now, instead of going through physical stores, consumer use internet to buy the vintage lightening rods.

(a) Due to this change in consumer trend, the demand curve shift to the right, Let the new demand curve be D₁ . The shift in the demand curve can be graphically represented as below:

quantity

(b) As all other factors remain the same an its only the shift in the demand for vintage lightening rods, the price remains the same at P, but the quantity in demand increase from the point Q₀ to the point Q₁ as referred in the above graph.