Question

Computer hardware and software are complements. Both goods are traded in perfectly competitive markets. A fall in the costs of production of microchips for computer hardware is likely to have the following effect on the market for computer hardware and software: ___________
a. A decrease in the equilibrium quantity of hardware traded, and a decrease in equilibrium quantity of software traded.
b. An increase in the equilibrium price of hardware and decrease in the equilibrium quantity of software traded.
c. An increase in the equilibrium quantity of hardware traded, and a decrease in the equilibrium quantity of software traded.
d. A decrease in the equilibrium price of hardware, and an increase in the equilibrium price of software.

Answer 1

Answer:

D

Explanation:

Complementary goods are goods that are consumed together

If the cost of microchips fall, it becomes cheaper to produce hardware. As a result, there would be an increase in the supply of hardware. An increase in supply would lead to a rightward shift of the supply curve. As a result equilibrium price decreases and equilibrium quantity increases.

As a a result of the decrease in price of hardware, it would become cheaper to purchase hardware. Thus, the demand for hardware increase. Since hardware and software are complements, there would also be an increase in the demand for software. This would lead to rightward shift of the demand curve for software. . An increase in demand leads to a rightward shift of the demand curve. As a result, equilibrium price and quantity increases