Smart phones are normal goods. What will happen to the equilibrium price and quantity of smart phones if phone plans become more expensive, fewer firms produce smart phones, and smart phone users experience a decrease in income?

Question

Quizplus · Accepted Answer

This scenario results in a decrease in demand for smart phones, causing a leftward shift of the demand curve. As a result, the equilibrium quantity of smart phones will decrease, but the effect on price is indeterminate since both the decrease in demand and the decrease in supply (due to fewer firms producing smart phones) could cause prices to both rise or fall. The decrease in income for smart phone users may also lead to a decrease in demand which will result in a leftward shift of the demand curve.

Smart Phones Are Normal Goods