Question

clearing price. 7 Explain the effect on market price and quantity in the market for mobile phones of each of the following: consumer incomes rise; technical improvements reduce production costs; the price of fixed-line calls falls sharply. 8 Suppose that the world price of cocoa rose by 20%

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Answer 1

Answer-7) With an increase in the consumer income it will cause an increase in the quantity demanded for the mobile phone handsets. It will lead to a rise in the prices and suppliers will avail this opportunity and increase the production; and thus both the price and quantity of mobile phone handsets increases.

The improvements in technology cause a decline in the production costs. As the input price is declined for the supplier thus will cause a reduction in prices of mobile phones. It will also cause a rise in the quantity because of the reduction in input cost. Thus the price decreases and quantity of mobile phone handsets increases. But in the long run a rise in demand for mobile handsets causes an increase in the prices.

When price of fixed-line calls declines sharply it will cause a fall in the quantity demanded for mobile phone handsets as consumers will prefers fixed-line because of the lower priced calls. It will result to a decline in the quantity supplied for mobile phones because these are substitutes in the market