Scenario: The rare earth element neodymium is one of the essential ingredients in the magnets used in computer hard drives and loudspeakers, among many other devices. The figures below shows a hypothetical pictures of supply and demand for neodymium, loudspeakers, and computer hard drives. The latter two are accompanied by the pictures of cost curves for a typical firm in those markets. Initially, all markets are in the long-run equilibrium at the prices shown. Then a surge in demand for loudspeakers takes place due to a rapidly increasing popularity of hi-fidelity audio equipment in China. This will cause a change in the loudspeaker market (Step 1), which in turn causes a change in the neodymium market (Step 2), which will cause a change in the hard drive market and the loudspeaker market (Step 3), and so on.

-Refer to the scenario above.What is expected to happen in the loudspeaker market after the surge in demand for loudspeakers (in Step 1)?

Question

Scenario: The rare earth element neodymium is one of the essential ingredients in the magnets used in computer hard drives and loudspeakers, among many other devices. The figures below shows a hypothetical pictures of supply and demand for neodymium, loudspeakers, and computer hard drives. The latter two are accompanied by the pictures of cost curves for a typical firm in those markets. Initially, all markets are in the long-run equilibrium at the prices shown. Then a surge in demand for loudspeakers takes place due to a rapidly increasing popularity of hi-fidelity audio equipment in China. This will cause a change in the loudspeaker market (Step 1), which in turn causes a change in the neodymium market (Step 2), which will cause a change in the hard drive market and the loudspeaker market (Step 3), and so on.
 
-Refer to the scenario above.What is expected to happen in the loudspeaker market after the surge in demand for loudspeakers (in Step 1)?

Quizplus · Accepted Answer

With the surge in demand for loudspeakers, the demand curve shifts to the right, causing the price and quantity to increase. This will create a profit incentive for new firms to enter the market, leading to an increase in supply. As a result, the market will experience an increase in both price and quantity, and the market will eventually reach a new long-run equilibrium at a higher price and quantity. Therefore, the answer is C, there will be an increase in supply due to entry.

Scenario: the Rare Earth Element Neodymium Is One of the Essential