Question

What is the effect of a decrease in price of CD's and a decrease in cost of royalties on the equilibrium price and quantity of music downloads?

1) both the equilibrium price and quantity would increase.
2) both the equilibrium price and quantity would decrease.
3) the equilibrium price would decrease, and the effect on equilibrium quantity would be ambiguous.

Answer 1

A decrease in price of CD's and a decrease in cost of royalties would result in a decrease in the equilibrium price and an ambiguous effect on the equilibrium quantity of music downloads.

Step-by-step explanation:

A decrease in the price of CD's and a decrease in the cost of royalties would have an effect on the equilibrium price and quantity of music downloads. Specifically, the equilibrium price would decrease, and the effect on equilibrium quantity would be ambiguous.