Question

If the equilibrium quantity demanded for a new sports watch is 900 truckloads of watches, and the equilibrium price is 70 then a drop in the price of watches to 40

Answer 1

Answer:

It will not create a shortage, It will increase demand for those watches.

Reason:

If you see something you really want for $70, and there is a price drop to $40 tell me you wouldn't buy it for almost half off. The other guy doesn't understand Economics

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Answer 2

A drop in the price of watches to 40 will generate a shortage in this market.

At the price of 40, more consumers would be willing to buy the sports watch than before. Therefore, the quantity demanded will end up exceeding the amount supplied and there will be customers who are not able to purchase the product. The amount demanded would grow over the quantity demanded in the former equilibrium scenario (900), while the quantity supplied would be located below the previous equilibrim quantity, hence, under 900.

If this situation in not adjusted it may lead to the proliferation of a parallel black market where consumers can satisfy their unfulfilled needs.