Assignment 1
The market clearing price denotes the price at which a good or services supply equates to the demand by the consumers of a good or service (Schwartz, Carew and Maksimenko). In this case we look at the reason for the continued increase in the market clearing price of the digital rock music albums. With the position of the demand curve in the market for the digital rock music remaining constant, an increase in prices is attributed to the increased costs of production of the music and general operation. The rock musicians strive to retain their profit margins even though the supply of their music does no increase. To achieve this, they employ measures that are geared towards increasing their revenues.The best alternative becomes increasing prices in order to remain with the same level of profit while at the same time they cater for the increased costs of production. This can be illustrated as follows.
The forces of demand and supply best explain the phenomenon. As their supply of rock music declines from Quantity (Q1) to Q2, the price shoots from P1 to P2.
As the prices increase, a prediction on the revenue of the sales of the albums is that the will be a decrease in the revenue eventually due to the elastic nature of the rock market. The explanation is that as less and less of rock music is supplied into the market; the prices will still tend to shoot upwards. This makes it less attractive to rock lovers and in times to come, the number of people buying the digital rock music will greatly decline.
Work cited
Schwartz, Robert A, Michael G Carew, and Tatiana Maksimenko. Micro Markets. 1st ed. Hoboken, N.J.: John Wiley & Sons, 2010. Print.
