One can gain insight by manipulating the price elasticity of the demand equation. The information provided below, demonstrate what happens in the specific markets. a.) Suppose there is a technological change that allows manufacturers to make Android smartphones much more cheaply. In fact, the retail price falls by 15%, ceteris paribus. i) If the price elasticity of demand is -0.7, how much does the quantity demanded change? ii) Are the producers definitely better off or worse off?
One can gain insight by manipulating the
a.) Suppose there is a technological change that allows manufacturers to make Android smartphones much more cheaply. In fact, the retail price falls by 15%, ceteris paribus.
i) If the
ii) Are the producers definitely better off or worse off?
b.) In an alternative scenario, ceteris paribus, suppose there is a new tax on data usage. The cum-tax monthly bill increases by 25%.
i) If the price elasticity of demand is -0.33, how much does the quantity demanded change?
ii) Do the data plan providers earn more revenue or less revenue?
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