Question 3.5
2. When a new, faster computer chip is introduced, demand for computers using the older, slower chips decreases. Simultaneously, computer makers increase their production of computers containing the old chips in order to clear out their stocks of old chips.
Draw two diagrams of the market for computers containing the old chips:
one in which the equilibrium quantity falls in response to these events and
Upon the announcement of the new chip, the demand curve for computers using the earlier chip shifts leftward, as demand decreases, and the supply curve for these computers shifts rightward, as supply increases.
one in which the equilibrium quantity rises.
If demand decreases relatively more than supply increases, then the equilibrium quantity falls, as shown here:
What happens to the equilibrium price in each diagram?
If supply increases relatively more than demand decreases, then the equilibrium quantity rises, as shown here:
