File-Sharing Programs Such as Napster,Kazaa,and IMesh Make It Possible for Individuals

question 11

Multiple Choice

File-sharing programs such as Napster,Kazaa,and iMesh make it possible for individuals to exchange music files over the Internet.On September 3,2003,Universal Music Group announced plans to reduce the wholesale price of music CDs it distributes by an average of 25-30 percent.Which of the following statements is correct regarding the combined effects of the development of file-sharing programs and Universal Music Group's price change in the market for new music CDs?

• A)The equilibrium quantity of CDs would increase; the effect on equilibrium price is uncertain.
• B)The equilibrium quantity of CDs would decrease; the effect on equilibrium price is uncertain.
• C)The equilibrium price of CDs would increase; the effect on equilibrium quantity is uncertain.
• D)The equilibrium price of CDs would decrease; the effect on equilibrium quantity is uncertain.

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Definitions:

Taxes

Necessary financial levies or assorted kinds of dues imposed on an individual by a governmental structure to facilitate government finance and numerous public investments.

Deadweight Loss

A decrease in economic productivity that happens when a good or service does not reach or cannot reach its equilibrium state.

Tax

Mandatory charges imposed by governments on individuals or entities to fund public services and goods.

Deadweight Loss

An economic inefficiency resulting from a market not reaching equilibrium, where potential gains from trade are not fully realized.