Reference no: EM132949984

Finding the Equilibrium Point

In 2019, Knight Electronics sold 350,000 digital video recorders (DVRs). Based on the company's analysis of the DVR market, the company believed that $160 was the equilibrium price based on the following supply and demand schedules.

2019 Price     Amount Supplied   Amount Demanded

$120                      290,000                    390,000

140                        320,000                    370,000

160                        350,000                    350,000

180                        380,000                    330,000

200                        410,000                    310,000

220                        440,000                    290,000

As the price of gasoline rose and the economy hit the skids, consumers began driving less and going out less frequently for entertainment. With more people staying at home, DVR usages increased. In 2020 Knight revised its estimate of the amount of product demanded. At each of the above price points, it estimates that consumers will purchase (demand) 50,000 more DVRs. For instance, at $140, now 420,000 DVRs will be sold. The price-amount supplied relationship remains the same.

1.  Describe what has happened to the supply and demand curves for Knight DVRs in 2019.

2. What is the new equilibrium price?

3. How many DVRs will be produced at the new equilibrium price?

4. Knight revised its estimate of the amount of product demanded for 2020 as described above. In 2021 a new technology became available enabling DVRs to communicate over cell phones and the Internet. Knight's competitors are selling this new DVR, called SuperDVR, for $150. What will happen to the supply and demand curves for Knight DVRs now?