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Consider the market for personal computers. Suppose that the demand is stable: the demand curve doesn't change. Predict the effects of the following changes on the equilibrium price of computers. Illustrate your answer with a supply and demand diagram.

a. The cost of memory chips (one component of a computer) decreases.

b. The government imposes a $100 tax on personal computers.

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Solution Summary

A supply and demand diagram is presented.

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a. The cost of memory chips decreases.

This will lower the cost to produce the computers, and hence the ...

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