Wednesday, September 9, 2009

Test your understanding of economics in the news: Is this a change in supply or a change in demand?

In his September 9, 2009 blog entry "Apple sets stage for music event with iPod price cuts," Ben Patterson announces Apple is lowering the price of its iPod music players.

Is the reduction in the price of iPods caused by (a) an increase in the supply of iPods, (b) a decrease in the supply of iPods, (c) an increase in the demand for iPods, or (d) a decrease in the demand for iPods?

Read the article below and then illustrate this price change with a graph that shows the initial positions of the supply and demand for iPods and the new positions of the supply and demand curves. (Hint: Both of the curves shift.) There is a link at the bottom that provides the answer.
Just hours before its "rock and roll" music event was set to kick off in San Francisco, Apple went ahead and chopped the price of its entire iPod Touch line by as much as $120. Also: price cuts for the Nano, Classic.

The 32GB iPod Touch—formerly $399, or a whopping $110 more than the upcoming 32GB version of the competing Zune HD—now sells for $279, a $120 discount that slightly undercuts the new Zune.

Meanwhile, the 16GB version of the Touch got a $50 price cut to $249—cheaper, but still $30 more than the 16GB Zune HD (which is slated to go on sale next week; check out my hands-on impressions). Finally, the 8GB Touch got a $40 haircut, to $189 from $229.

The iPod Touch wasn't the only iPod model to get a price cut. Apple also trimmed the price tag of its iPod Nano players by $50 for the 16GB version (was $199, now $149) and $20 for the 8GB device (was $149, now $129). Also cheaper: the venerable, 120GB iPod Classic, now $229 after a $20 price cut.

The discounts come amid rumors of new iPods with built-in cameras (which may or may not be unveiled later today), although there has been chatter (all unconfirmed) of manufacturing problems that may delay their release.

And then there's the touchscreen Zune HD, set for release Sept. 15, that boasts 720p HD video playback on an external HDTV with the help of an optional HDMI-enabled A/V dock. The Zune, of course, has a mighty big hill to climb before it can even begin to compete with iPod sales, but the Zune HD's price tags—$289 for the 32GB model, and $219 for the 16GB version—were considerably cheaper than those of the iPod Touch before today's price cut.


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