Supply and demand question

Q. In recent years, technological improvements have greatly reduced the costs of producing basic cell phones, and a number of firms have entered the cell phone industry. At the same time, prices of substitutes for cell phones, such as smartphones and some tablet devices, have declined considerably. Construct a supply and demand diagram of the market for cell phones. Illustrate the impacts of these developments, and evaluate the effects on the market price and equilibrium quantity.

As one of the determinants of supply, the development of the technology in producing basic cell phones would cause the supply curve to shift leftward. It is because manufactures would make more cell phones with a cheaper cost in producing cell phones. As the opposite of the change of the supply, the demand curve would shift rightward, which means that the demand of the cell phones decreased. Also, it is expected that people would like to prefer purchasing the substitutes for cell phones such as smartphones and some tablet devices since they are offered with the cheaper price than cell phones.

From this point, it can be said that the market price decreased from E1 to E2 as the graph above mentioned. When it comes to the equilibrium quantity, its change cannot be determined or seen without more information. The increased demand tends to raise the equilibrium quantity, whereas the decreased supply tends to reduce the equilibrium quantity.