Question

Consider the market for cable-based Internet access service, which is a normal good. Explain whether the following events would cause an increase or a decrease in demand or an increase or a decrease in the quantity demanded. a. Firms providing wireless (an alternative to cable) Internet access services reduce their prices.b. Firms providing cable-based Internet access services reduce their prices.c. There is a decrease in the incomes earned by consumers of cable-based Internet access services.d. Consumers’ tastes shift away from using wireless Internet access in favor of cable-based Internet access services.

Answer 1

Answer:

a. Decrease in demand

b. Increase in quantity demanded

c. Decrease in demand

d. Increase in demand

Explanation:

A change in quantity demanded of any product is caused by change in its price while other factors are constant. On the other hand, a change in the demand is caused because of change in other factors while the price of the product remains constant.  

a. Here, a wireless internet access service is a substitute for cable-based internet service. A decline in the price of substitute will cause consumers to prefer the cheaper substitute. As a result, the demand for cable-based service will decline.  

b. With the decline in the price of cable-based service will lead to an increase in the quantity demanded.

c. A decrease in the income of the consumers would lead to a decline in the demand as the consumers will be able to afford less.  

d. A shift in consumer's taste in favor of cable-based services will lead to an increase in demand as people will now prefer more of cable-based services.