A-level Economics can someone help me answer this urgently

(c) Extract B (lines 11.12) states that the prices of DVD recorders are likely to fall rapidly over the next few years. With the help of a supply and demand diagram, explain how this may affect the market for video cassette recorders. (9 marks)

Reply 1

yzven

Original post by Sohear16

From the context of the Q I believe DVD recorders and video cassette recorders are subsitute goods, which means you should demonstrate that you know how related goods interact. If the prices of DVD recorders fall, we assume the price mechanism overrules any other determinants of the demand for DVD recorders and video cassette recorders eg. people may experience consumer inertia for video cassette recorders because of habit etc. We shall therefore proceed by also assuming consumers are rational and utility maximisers. Therefore, the lower prices of DVD recorders signals to consumers to substitute their demand in favour of DVD recorders, and away from video cassette recorders, allocating more of their income to DVD recorders, rationing their income away from cassette recorders, as DVD recorders are now relatively cheaper in comparison, which means they can derive more marginal utility from consuming one extra DVD recorder than consuming one extra cassette recorder. Consequently, we see a decrease in demand in the market for video cassette recorders, leading to a contraction in supply and fewer being produced.

You can easily show this on a diagram. For a 9 marker, assuming you are on AQA, you only need a definition (here you would define supply and/or demand, or market) and then proceed to give one technical, detailed chain of reasoning something like mine. You can probably add to mine, not revised substitute/complementary goods in a while aha