Q3) Taiwan is a major world supplier of semiconductor chips. A recent earthquake severely damaged
the production facilities of Taiwanese chip-producing companies, sharply reducing the amount of chips
they could produce.
a. Assume that the total revenue of a typical non-Taiwanese chip manufacturer rises due to these
events. In terms of an elasticity, what must be true for this to happen? Illustrate the change in total
revenue with a diagram, indicating the price effect and the quantity effect of the Taiwan earthquake on
this company's total revenue.
b. Now assume that the total revenue of a typical non-Taiwanese chip manufacturer falls due to these
events. In terms of an elasticity, what must be true for this to happen? Illustrate the change in total
revenue with a diagram, indicating the price effect and the quantity effect of the Taiwan earthquake on
this company's total revenue.