New iPhones are normal goods. What will happen to the equilibrium price and quantity in the market for iPhones if the price of Android phones fall, the wages of iPhone chip makers increase, some buyers exit the market for iPhones, and the price of iPhone batteries increase?

Question

Quizplus · Accepted Answer

The fall in the price of Android phones (substitutes) and the exit of some buyers from the market will decrease the demand for iPhones. The increase in wages of chip makers and the price of batteries (both inputs) will increase production costs, leading to a decrease in supply. Both effects lead to a decrease in quantity. The effect on price is ambiguous because the decrease in demand puts downward pressure on price, while the decrease in supply puts upward pressure on it.

New IPhones Are Normal Goods