Music compact discs are normal goods. What will happen to the equilibrium price and quantity of music compact discs if musicians receive higher royalties, compact disc players become more expensive, fewer firms produce music compact discs, and music lovers experience a decrease in income?

Question

Quizplus · Accepted Answer

Higher royalties for musicians will increase the cost of producing music compact discs, which will shift the supply curve to the left. Expensive compact disc players and fewer firms producing music compact discs will also decrease the supply. All of these factors combined will decrease the equilibrium quantity. A decrease in income for music lovers will decrease the demand for music CDs, shifting the demand curve to the left. The effect on price is ambiguous, as both supply and demand are decreasing, but the effect on quantity is clear – it will decrease. Therefore, the best choice is C.

Music Compact Discs Are Normal Goods