Use the demand-supply model to illustrate the changes in the market for cell phones over the last twenty years. Be imaginative in your answer and try as much as possible to relate the demand side factors and the supply-side factors we studied in class to the market under study. Although drawing graphs is not necessarily required, yet it could help you to illustrate your answer

 

Answer:

Supply and demand graph shows how the economic forces of supply and demand work alongside price to bring the economy either at equilibrium or disequilibrium. In this question I shall analyze changes in the market for cell phones over the last twenty years and how the forces of supply and demand come in to play.

Step-by-step explanation

The assumption made is that with time cell phone companies update their software and there is technological progress hence the prices keep on fluctuation depending on the how technical the phones are.

The price elasticity of demand refers to the degree of change of the cell phones changes as the prices change due to technological progress.

When the prices charged on cell phones are low, the demand increase considering that they are affordable, therefore there will be increase in the supply of Cell phones to meet the high demand.

When the prices charged on Cell phones are high, then the demand decreases as very few people can afford to purchase it at such high prices, the supply of Cell phones will reduce.

The equilibrium point is point (P1,Q1) - the point of intersection of the demand curve and the supply curve. This interprets the price charged at that point is perfect in that the quantity supplied meets the quantity demanded thus stability (there will neither be surplus nor deficit)

PFA