pg-17
Demand and Supply Both Shift In

Suppose, that due to the introduction of new cell phones high resolution cameras, PDA features and bluetooth networking, the demand for older style cell phones without cameras or with lower resolution cameras shifts back (decreases). This shift would tend to cause both price and quantity of older phones to fall.

At the same time, as manufacturers switch to producing the newer, feature-rich cell phones, the supply of the older style phones also shifts back. This shift back tends to cause price for these phones to rise and quantity to fall. Since both shifts tend to reduce quantity, we can say for sure that quantity will fall, but the shifts affect price in opposite directions so we cannot say, for certain, if price will increase or decrease.

The graph to the right, shows demand for older style cell phones shifting back from D1 to D2 and supply of older style phones shifting back from S1 to S2. As predicted, equilibrium quantity falls from to . Price however remains virtually unchanged with the new equilibrium price, , virtually identical to the original equilibrium price, .

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