Question

In 1999, two college students introduce Napster (kind of a forerunner to iTunes, but sharing music files for free). What effect does this have on the price and quantity of blank CDs, ceteris paribus?

a.No effect
b.Raises price, lowers quantity
c.Lowers price, raises quantity
d.Raises price and quantity

Answer 1

The introduction of Napster likely increased the demand for blank CDs, impacting both price and quantity. Option D, raising both price and quantity, is the most accurate.

Step-by-step explanation:

Napster facilitated free music sharing, leading to a surge in CD burning as users downloaded and stored music. This amplified the demand for blank CDs, causing their price to rise due to increased consumer interest.

Simultaneously, suppliers responded to this heightened demand by producing more blank CDs to meet the market needs, thus increasing the quantity supplied. Consequently, the equilibrium price went up due to increased demand, while the quantity of blank CDs exchanged in the market also increased, depicting the impact of Napster's introduction on the CD market.