Homework: HW 4
Question 3, Text Problem 4-3
HW Score: 15.38%, 2 of 13 points
Points: 0 of 1
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Part 1
There are simultaneous changes in the demand for and supply of global-positioning-system (GPS) devices, with the consequences being an unambiguous increase
in the market clearing price of these devices but no change in the equilibrium
quantity. What changes in the demand for and supply of GPS devices could have generated these outcomes?
Part 2
A.
Demand increases and supply decreases
.
B.
Demand increases and supply increases.
C.
Demand decreases and supply increases
.
D.
Demand decreases and supply decreases.
Part 1: In order for there to be an unambiguous increase in the market clearing price of GPS devices but no change in the equilibrium quantity, the following changes could have occurred:
A. Demand increases and supply decreases: This means that there is a greater demand for GPS devices, but at the same time, the supply of GPS devices has decreased. The increase in demand outweighs the decrease in supply, leading to an increase in the market clearing price. However, due to the decrease in supply, the equilibrium quantity remains the same.
Part 2: Based on these options, the correct answer would be:
A. Demand increases and supply decreases.
Part 1: The scenario describes a simultaneous change in the demand for and supply of GPS devices, resulting in an increase in the market clearing price but no change in the equilibrium quantity.
To generate these outcomes, the changes in the demand for and supply of GPS devices must be such that they offset each other, leading to an unchanged equilibrium quantity but a higher market clearing price.
Part 2: Among the given options, the combination that fits the described scenario is A. Demand increases and supply decreases.
When the demand for GPS devices increases, it puts upward pressure on the price. At the same time, if the supply of GPS devices decreases, it further restricts the availability of these devices and leads to a higher market clearing price.
Thus, option A correctly describes the changes in the demand for and supply of GPS devices that could generate the outcomes described in the scenario.
To answer this question, you need to analyze the changes in demand and supply of GPS devices that could lead to an increase in the market clearing price without a change in the equilibrium quantity.
In Part 1, it states that the market clearing price of GPS devices increased but the equilibrium quantity remained the same. This implies that there was no change in the quantity of GPS devices bought and sold but the price increased.
In Part 2, you are given four options: A, B, C, and D, each representing a combination of changes in demand and supply. You need to determine which combination could result in an increase in price without a change in quantity.
Option A suggests that demand increases and supply decreases. If demand increases, it puts upward pressure on the price. However, if supply decreases at the same time, it can offset the increase in demand, resulting in no change in quantity. This combination could explain the situation described.
Option B suggests that both demand and supply increase. If both increase, it would likely lead to an increase in quantity, not the situation described in the question.
Option C suggests that demand decreases and supply increases. If demand decreases, it puts downward pressure on the price. If supply increases at the same time, it can offset the decrease in demand, resulting in no change in quantity. This combination does not explain the increase in price mentioned in the question.
Option D suggests that both demand and supply decrease. If both decrease, it would likely lead to a decrease in quantity, not the situation described in the question.
Based on the above analysis, the correct answer would be Option A: Demand increases and supply decreases. This combination of changes in demand and supply can result in an increase in the market clearing price without a change in the equilibrium quantity.