Author Question: Assume that CDs are a normal good and that the price of stereo equipment falls while the labor costs ... (Read 66 times)

cmoore54 · **on:** Jun 29, 2018

Assume that CDs are a normal good and that the price of stereo equipment falls while the labor costs of producing CDs increase. What will happen in the market for CDs?

What will be an ideal response?

Question 2

When deriving the production possibilities curve, it is assumed that

A) the amount of each good that is to be produced is fixed.
B) the prices of resources are fixed along the curve.
C) most resources can be used to produce only one good.
D) resources are efficiently used.

frogdreck123456 · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

Since stereo equipment is a complementary good to CDs, a decrease in the price of stereo equipment causes the demand for CDs to increase. The increase in labor costs causes the supply of CDs to decrease. The price of CDs will increase, but the quantity sold in the market could increase, decrease, or remain the same. The quantity effect depends on how much demand increased relative to how much supply decreased.

Answer to Question 2

D