An overcapacity of LCD fabrication plants causes the price of LCD televisions to fall. How would this affect the market for Blu-ray DVD players (a complement to LCD televisions)if everything else is held constant?
A)The supply of Blu-ray players would increase and the equilibrium price of Blu-ray players would decrease.
B)The demand for Blu-ray players would increase and the equilibrium price of Blu-ray players would increase.
C)The demand for Blu-ray players would decrease because consumers could afford to buy fewer LCD televisions and Blu-ray players.
D)The demand for Blu-ray players would increase and the equilibrium price of Blu-ray players would decrease.

Question

Quizplus · Accepted Answer

When the price of LCD televisions falls due to overcapacity, more consumers are likely to purchase LCD TVs because they are cheaper. Since Blu-ray DVD players are complements to LCD TVs, the demand for Blu-ray players will increase as more people buy LCD TVs. This increased demand for Blu-ray players, with supply remaining constant, will lead to an increase in the equilibrium price of Blu-ray players.

An Overcapacity of LCD Fabrication Plants Causes the Price of LCD