Question

In the past 5 years, the cost of producing 4K televisions has decreased. At the same time, many consumers are opting to watch television programs on their smartphones, tablets or laptops. Considering these two facts, assess the following claim: "The price of 4K TVs are decreasing, but it is not clear whether the quantity of 4K televisions bought and sold have increased or decreased." a. Correctb. Incorrect

Answer 1

Correct.

Step-by-step explanation:

If the cost of production of 4K televisions decreases then as a result this will increase the supply of 4K televisions and shifts the supply curve of 4K televisions rightwards.

At the same time, there is a unfavorable change in the consumer preference. Now, consumers prefer to watch television programs on their smartphones, tablets or laptops. This will shift the demand curve of 4K televisions leftwards.

Therefore, there is a fall in the equilibrium price level and the effect on equilibrium quantity is ambiguous because it depends upon the magnitude of the shifts of demand and supply curve.