Economics – The interaction of demand and supply | e-Consult

Analysis using a diagram:

The technological innovation will lead to a shift in the supply curve to the right. This will result in a lower equilibrium price and a higher equilibrium quantity of mobile phones. The diagram should clearly show the shift in the supply curve and the resulting change in the equilibrium price and quantity. Label the axes and indicate the direction of the shifts.

Effects on price and quantity:

• Price: The price of mobile phones will fall.
• Quantity: The quantity of mobile phones demanded and supplied will increase.

Implications for older models:

The demand for older models of mobile phones is likely to decrease. As newer, cheaper models become available, consumers will be less willing to purchase older models. The price of older models will also fall.

Elasticity of demand:

The innovation is likely to increase the elasticity of demand for mobile phones. This is because consumers have more options and are more responsive to changes in price. The availability of cheaper alternatives makes consumers more likely to switch to newer models when prices fall.