The cost of producing smart phones has fallen over the past few years. Let’s consider some implications of this fact.

a. Use a supply-and-demand diagram to show the effect of falling production costs on the price and quantity of smart phones sold.

b. In your diagram, show what happens to consumer surplus and producer surplus.

c. Suppose the supply of smart phones is very elastic.

Who benefits most from falling production costs –

consumers or producers of smartphones?