Which of the following will reduce the demand for portable music players in a competitive market?
1. The development of improved, low-priced devices that compete with music players. 2. an increase in population and incomes. 3. a substantial increase in the number and quality of music players. 4. consumer expectations of substantial price increases in music players
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Of the options that you have given here, only option 1 and part of option 3 will decrease the demand for portable music players. The other options will either increase demand for the players or will have no effect on demand.
One of the major non-price determinants of demand is the availability and the price of substitute goods. In general, the more substitutes there are for a product, and the less they cost, the lower the demand for the product in question. If a new device is developed that will be a substitute for portable music players, some consumers will choose to buy that product and demand for the players goes down.
Options 2 and 4 would both cause demand to increase. We can assume that portable music players are a normal good and not an inferior good. Therefore, as incomes increase and as there are more buyers, the demand for those players will increase.
Finally, option 3 will not change demand for these players. To be more precise, one half of option 3 will not change demand and the other half will increase demand. An increase in the quality of the players should increase demand. Consumers will presumably pay more for a better device. By contrast, an increase in the number of music players will not have any effect on demand. This is simply an increase in supply. Changes in supply will affect the equilibrium price and quantity, but they do not change demand.
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