Supply and demand

• Distinguish between producer and consumer theory.

You are a junior executive of a new cellular phone carrier called Technologies of the Future (TOF) that competes in the same market as Verizon Wireless, AT&T, and T-Mobile. You have been tasked with providing the Committee Board members of TOF with a report that discusses issues that would be encountered by Technologies of the Future (TOF) when deciding whether  TOF and Apple iPhones are substitutes or complementary goods and when analyzing the price elasticity of demand for the competitors’ smartphones. Address the following items in your report:

• If the price elasticity of demand is 5, and prices increase by 10%, calculate the percentage change in quantity demanded.
• Explain which TOF smartphones and Apple iPhones would be considered substitutes or complementary goods in terms of changes in price, and what impact a change in quantity would have.
• Is the cross-price elasticity of demand positive or negative, and why?
• Explain which TOF smartphones and phone chargers would be an example of substitutes or complementary goods.