Practice Quiz

AP Microeconomics

Category - Microeconomics

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Think of a good like a portable media device. In general, the market price of media devices like portable DVD players, MP3 players, etc. has fallen over the past few years-even though the quantity produced and the quantity consumed have increased. What would be the most likely reason for this?
  1. The industry has established a price floor for portable media
  2. The demand for portable media has greatly outpaced the supply
  3. Production of portable media devices has become cheaper
  4. Consumers were not willing to pay high prices for portable media. The industry had to lower prices in order to make a profit.
Explanation
Answer - C - The reason for this situation is that production of portable media devices has become cheaper.

Key Takeaway: Consumer choices always drive what is going on in the market. Because the production of portable media devices has become cheaper, producers were able to offer them at a lower price. Because producers could offer the devices at a lower price, more individuals were able to consume them. Prices have continued to fall, leading to an ever increasing number of people who are able to afford them. This lead to the scenario in which the market price of the devices has fallen, even though quantity produced and consumed have greatly increased.
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