Music compact discs are normal goods. What will happen to the equilibrium price and quantity of music compact discs if musicians accept lower royalties, compact disc players become cheaper, more firms start producing music compact discs, and music lovers experience an increase in income?

Question

Quizplus · Accepted Answer

Accepting lower royalties by musicians, a decrease in the cost of production due to cheaper compact disc players, and more firms producing music compact discs will result in a decrease in the equilibrium price of music compact discs. An increase in the income of music lovers will lead to an increase in their demand for music compact discs, increasing the quantity demanded. Therefore, the equilibrium quantity of music compact discs will rise, and the effect on price is ambiguous.

Music Compact Discs Are Normal Goods