Question

Use the four-step process to analyze the impact of the advent of the iPod (or other portable digital music players) on the equilibrium price and quantity of the Sony Walkman (or other portable audio cassette players). Include graphs

Answer 1

Step 1-

Initial Equilibrium =E*.

Initial Equilibrium Quantity= Q*

Initial Equilibrium Price=P*

Step 2- Advent of the iPod affects the demand for Sony Walkman. As people prefer iPod over Sony Walkman.

Step 3- Advent of iPod leads to rise in demand for iPod and fall in demand for Sony Walkman. Demand curve shifts leftward.

Step 4- Leftward shift of demand curve leads to fall in quantity supplied of Sony Walkman. Equilibrium Price falls and equilibrium Quantity falls.

New Equilibrium =E**.

New Equilibrium Quantity= Q**

New Equilibrium Price=P**