Assume over a certain period of time the technology for producing compact disk players has improved, and over the same period of time the economy has moved into a recession, causing the incomes of consumers to decrease. Which of the following will happen to the equilibrium price and equilibrium quantity for CD players? (Assume CD players are normal goods.) Price will increase; quantity cannot be determined. Price will decrease; quantity cannot be determined. Quantity will increase; price cannot be determined. Quantity will decrease; price cannot be determined.

Price will decrease; quantity cannot be determined.

Explanation:

Technological changes is one of the important determinant of supply. So, if there is an advancement of technology in the production of compact disc players then as a result there is an increase in the productivity of the workers and hence, there is an increase in the supply of CD players. This will shift the supply curve of CD players rightwards.

CD players are considered as a normal good. Hence, there is a positive relationship between the income of the consumers and the demand for normal goods. If there is a fall in the income of the consumers because the economy is experiencing a recession then as a result the demand for CD players decreases. This will shift the demand curve of CD players leftwards.

Conclusion:

Therefore, there is a fall in the equilibrium price level and the impact on equilibrium quantity cannot be determined because that will be dependent upon the magnitude of the shifts of demand and supply curve.

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