Beats produces many models of headphones in its product line. If profits on the Wireless Headphone model increase, would this…

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Beats produces many models of headphones in its product line. If profits on the Wireless Headphone model increase, would this be reflected as a change in demand or a change in supply in the market for the Studio Headphones model, ceteris paribus? Explain. Be sure to clearly identify a textbook variable or determinant that is causing this change. Would this change be an increase or decrease? Explain. Would this change result in a surplus or in a shortage in the market for Studio Headphones? Explain. Given this surplus or shortage, how will a new equilibrium be established? What do you predict will happen to the equilibrium price and the equilibrium quantity exchanged in the market for Studio Headphones? Explain.

A high level of understanding is demonstrated through the ability to teach others. In this
assignment you are to assume that you are writing for a high school student that needs
you to teach him or her how to analyze a market using the demand/supply model. Be
detailed, specific and clear in your double-spaced, word-processed, textual explanations
as you consider the market for Beats Studio Headphones by Dr. Dre.

Do all the required readings for Module 1 and based on the textbook demand/supply
model of Chapter 3, answer the following in question and answer format. There is no
need to repeat the question as part of your answer a number followed by an answer will
suffice.

1. Beats produces many models of headphones in its product line. If profits on the
Wireless Headphone model increase, would this be reflected as a change in
demand or a change in supply in the market for the Studio Headphones model,
ceteris paribus? Explain. Be sure to clearly identify a textbook variable or
determinant that is causing this change. Would this change be an increase or
decrease? Explain. Would this change result in a surplus or in a shortage in the
market for Studio Headphones? Explain. Given this surplus or shortage, how
will a new equilibrium be established? What do you predict will happen to the
equilibrium price and the equilibrium quantity exchanged in the market for
Studio Headphones? Explain.

2. Illustrate your change in #1 on a graph of the market for “Beats Studio
Headphones.” Label your graph fully using the “sample graph for milk” (see that
PDF) as an example. Be sure to clearly indicate the surplus or shortage distance
and what happens to equilibrium price and equilibrium quantity exchanged on
your graph using arrows. Provide a legend as well.

3. If consumers expectations are that Beats will continue to come up with newer
and more updated headphone models at an ever increasing pace, would this be
reflected as a change in demand or a change in supply in the market for the
Studio Headphones model, ceteris paribus? Explain. Be sure to clearly identify a
textbook variable or determinant that is causing this change. Would this change
be an increase or decrease? Explain. Would this change result in a surplus or in a
shortage in the market for Studio Headphones? Explain. Given this surplus or
shortage, how will a new equilibrium be established? What do you predict will
happen to the equilibrium price and the equilibrium quantity exchanged in the
market for Studio Headphones? Explain.

4. Illustrate your change in #3 on a graph (yes a second one) of the market for
“Beats Studio Headphones.” Label your graph fully using the “sample graph for
milk” (see that PDF) as an example. Be sure to clearly indicate the surplus or
shortage distance and what happens to equilibrium price and equilibrium quantity
exchanged on your graph using arrows. Provide a legend as well.

5. If the change in #1 and the change in #3 happened in concert (at exactly the same
time), what do you predict will happen to the equilibrium price and equilibrium
quantity exchanged of Beats Studio Headphones? Illustrate on a fully labeled
graph (yes a third one!) and, most importantly, explain your thinking in
words. Provide a legend for your graph as well.

Just so you are clear on the level of detail and clarity I’m looking for, an outstanding
answer, if talking about the milk market, might, in part, go something like this:

1. A government subsidy in a variable or determinant of supply. An increase in a
subsidy to dairy farmers has the effect of offsetting production cost, leading to
greater profit potential. These farmers should respond to increased profit potential
by being willing and able to produce and supply more milk to market at each and
every possible price. This is called an increase in supply and is illustrated
graphically by a shift of the existing supply curve (S1) to the right. The new
supply curve reflecting this increased subsidy is labeled S2, which, as seen on my
graph, is clearly to the right of S1. With no change in demand, this increase in
supply will result in quantity supplied being greater than quantity demanded at the
current market price. This is called a market surplus. The surplus is illustrated
graphically as the distance between the demand curve and the new supply curve at
the current market price. This surplus will cause market price to fall until a price
is reached where a new equilibrium (E2) is established a price at which quantity
supplied again equals quantity demanded. This new equilibrium is composed of a
new lower equilibrium price (Pe2) and a new higher equilibrium quantity
exchanged (Qe2).

Q0 Q1

P0 P1

So

S1

E1

E2

5. In this graph it will show that s0 & s1 will change position, while the supply increases and the demand decreases. This will mean the equilibrium will shift from E2 to E1

Demand
Q0 Q1
P0 P1
So
S1
E1
E2
5. In this graph it will show that s0 & s1 will change position, while the supply increases and the demand decreases. This will mean the equilibrium will shift from E2 to E1