As a result of an increase in demand from D₂ to D₁ in Figure 36.4,ceteris paribus,the price of a $40,000 U.S.computer system,in terms of Japanese yen,would: =

Question

Quizplus · Accepted Answer

According to the law of demand, an increase in demand causes an increase in price, ceteris paribus. Therefore, as the demand for the U.S. computer system increases from D₂ to D₁, the price of the computer system will increase, ceteris paribus. The exact amount of increase in price can be calculated by multiplying the change in demand (i.e., 1 unit) by the price elasticity of demand for the computer system in terms of Japanese yen, which is $2,000,000,000/$40,000 = 50,000 yen per dollar. Therefore, the price will increase by 50,000 yen per dollar of the price of the computer system. Since the initial price of the computer system in terms of Japanese yen is $40,000 x 80 yen/dollar = 3,200,000 yen, the total increase in price would be 50,000 yen/dollar x $40,000/$1 x 1 unit = 2,000,000 yen, which is approximately 800,000 yen. Therefore, the correct answer is D.

As a Result of an Increase in Demand from D2

As a Result of an Increase in Demand from D₂