What will happen to the equilibrium price and quantity of landline phone services if new technologies lower the costs of providing such services and, at the same time, alternatives such as the Internet or smart phones have become more popular?

Question

Quizplus · Accepted Answer

When the costs of providing landline phone services decrease, the supply of those services will increase. This will lead to a lower equilibrium price. However, the increase in popularity of alternatives such as the Internet or smart phones will decrease the demand for landline phone services. The effect on quantity is thus ambiguous, as the decrease in price will increase quantity demanded, but the decrease in demand will decrease quantity demanded. Overall, the decrease in demand is likely to have a stronger effect, leading to a potential decrease in quantity supplied and an ambiguous effect on quantity demanded.

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