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).

a) Decrease in price, increase in quantity
b) Increase in price, decrease in quantity
c) Increase in price, increase in quantity
d) Decrease in price, decrease in quantity

Answer 1

The iPod's introduction shifted the Sony Walkman's demand curve leftward, resulting in a decrease in both equilibrium price and quantity, accurately described as option (d).

Step-by-step explanation:

Analyzing the Impact of the iPod on Sony Walkman Equilibrium

To analyze the impact of the advent of the iPod on the equilibrium price and quantity of the Sony Walkman using the four-step process, we follow these steps:

1. Identify the change – The introduction of iPods, a new technology for playing music.
2. Determine the effect on demand or supply – The iPod, being a substitute product, decreases the demand for Sony Walkmans.
3. Decide whether the demand/supply curve shifts to the right or to the left – The demand curve for Sony Walkmans shifts to the left as consumers prefer iPods.
4. Analyze the effect on equilibrium price and quantity – The leftward shift in the demand curve for Sony Walkmans leads to a decrease in the equilibrium price and quantity.

Therefore, the correct answer is (d) Decrease in price, decrease in quantity of the Sony Walkman as a result of the introduction of the iPod and similar digital music players.