Suppose that as the output of mobile phones increases, the cost of touch screens and other component parts decreases. If the mobile phone industry features pure competition, we would expect the long-run supply curve for mobile phones to be:

Question

Anna Mcgrath

Business

9 September, 16:36

Suppose that as the output of mobile phones increases, the cost of touch screens and other component parts decreases. If the mobile phone industry features pure competition, we would expect the long-run supply curve for mobile phones to be:

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Jayson · Answer 1

Downward sloping

Explanation:

The demand curve illustrate what's known as the law of demand in economics. Consumers buy more of something when its price is lower and less when the price is higher. There is an inverse relationship between price and demand, meaning that when one rises, the other falls.

Economists give three basic reasons for the law of demand and thus for the downward slope. First is the "income effect" when prices drop (or rise), people can buy more (or less) of a good for the same amount of money. Second is the "substitution effect" if a consumer doesn't see a meaningful difference between products, they'll buy the one with the lowest price, so a price increase will drive them toward substitutes, while a reduction will draw them in.

Third is the concept of "diminishing marginal utility": if you already have plenty of something, you have less of a need to buy more of it.