I’m studying for my Economics class and don’t understand how to answer this. Can you help me study?
Forum: Price Fluctuations
Please tell us about a price that you think is too high or too low. Keeping in mind what we learned in this chapter, that the price is the result of the interactions of supply and demand, please use supply and demand to explain why the price is strange, and what causes it to be so.
Here is an example of great work; do not pick smart phones for your example:
Every time I see new model of phone come out, I notice a year or so later you can still buy the phone new, but the price is lower. The main reason for this is that there are new models out (substitutes), which makes a given model from the year before less attractive. This would be modeled by the demand for the phone shifting left because it is less attractive. At the same time, the company that makes it isn’t expecting to be able to sell as many, so they don’t produce as many at a given price, which could be modeled by a leftward shift in supply. Since both curves are shifting left, but the price falls, it must be that the shift in demand is greater than the shift in supply.