Question

A vendor makes a new smartphone and presells four thousand units for $300 each. The factory has the capacity to produce one thousand smartphones per month. Anticipated sales are five hundred units per month. Which of these would occur during the first few months of sales?

1. Limited demand would increase the price.
2. Limited supply would increase the price.
3. Unlimited demand would decrease the price.
4. Unlimited supply would decrease the price.

Answer 1

2. Limited supply would increase the price

Step-by-step explanation:

In the given case the vendor sells in advance four thousand units for $300. While the installed capacity of the factory being to produce 1000 smartphones every month.

Expected sales being 500 units per month.

During the first few months, since the seller has already successfully sold 4000 smartphone units, high demand for the smartphones is evident.

Since the supply is limited to 1000 units only in a month and the quantity demanded being more as is evident by 4000 units being pre sold, during the initial phase, this would create a high demand.

And since the supply is limited, the seller will have to increase the price as the demand is lot more.