Consider the market for iPods. What happens if a fantastic new alternative MP3 player is developed and at the same time a boat carrying a large shipment of iPods is attacked by pirates and sunk?

Question

Quizplus · Accepted Answer

The development of a fantastic new alternative MP3 player will increase competition in the market, which will likely lead to a decrease in demand for iPods. On the other hand, the pirate attack and sinking of the shipment of iPods will decrease the supply of iPods. The net effect on price and quantity is uncertain, but if the decrease in supply is greater than the decrease in demand, then price will increase and quantity will decrease. However, if the decrease in demand is greater than the decrease in supply, then price will decrease and quantity will decrease. Therefore, the change in price is indeterminate, but quantity is likely to decrease.

Consider the Market for IPods