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Friday, September 29, 2006

Microeconomics quiz of the week Part II

Another interesting supply and demand question from this week's WSJ microeconomics recap:
"Want a flat-panel TV with that tool belt? Home-improvement, clothing and office-supply stores plan to crash the party for big-screen television sets now dominated by Best Buy Co. and other electronics retailers. The development highlights the starring role that super-slim TVs are taking not just in the living room but in every nook of the home. And the new outlets could trigger ever-faster price declines as lowest-cost, lesser-known brands grab shelf space and consumer recognition." The article reports that if the increased number of retailers selling the flat-panel TVs results in a price war, then the manufacturers could cut back on the number of retailers. The article reports two reasons for new retailers entering the flat-panel TV market: exploding consumer demand; and more companies making the televisions.

QUESTIONS:
1.) Use long-run analysis to explain why manufacturers and retailers are entering the flat-screen TV market.

2.) How will the entry of new retailers affect the profits of current sellers?

3.) What is the benefit to manufacturers of more retailers entering the flat-screen TV market? What is the potential harm?

Reviewed By: James Dearden, Lehigh University

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