Change In Quantity Demanded And Change In Price Economics Essay

Computers are sophisticated machines using for processing business and other data in to meaning full or useful way. Computers are machines which having a unique and comprehensive history to say. Computers where huge machines which occupied even a single room but could only do limited calculations. But gradually as the era passed by the size of computers becomes to reduce and reduce. Now computers are machines which micro in size and high in performance. The modern computers comprise monitor, key board, mouse, memory and processor. Now there are plenty of companies in the market, who producing different parts of the computers and set of whole systems. Mini personnel computers called laptops are available now with different brands called apple, Sony, dell, Compaq etc.

It is more miraculous that while we talk about price of earlier computers and latest computers. It was so costly that to buy a computer in earlier days. But the thing was there where no such a high usage or consumption in earlier days. Now the usage and utility of computers increased. The computers are primary necessity of business as well as professionals. There a situation arises that business cannot survive without the computer machines today.

In economic terms, we can tell that the price of computers reduce while the demand for the computers increased. The customers are more in computer market and price of computers reduced. That means a plenty of computers are available in market with low cost. The main producers of personal computers are apple, Sony, hp, Compaq, Toshiba, Dell. That is why the competition among different producers is high and that caused to reduce the cost up to the certain extent.

Price and demand relation of computers

In case of computers, today

The price of computers are getting down in spite demand is moving high. That means as the demand becoming more on computers the price becoming low.

Here is the question raising that why it is being so?

The basic law of economics is not satisfying this scenario.

Let check the law of demand and supply now. Because the basic law describes that when the demand for the commodity increases the price also getting high, and when the demand fall price also will fall. That shows there is a direct relation between demand and price.

Law of Demand

The law of demand explains the relationship between change in quantity demanded and change in price. It states that higher the price lower will be the quantity demanded in the market: and the lower the price, the higher would be the quantity demanded in the market. In other words, the law of demand says that the price and quantity demanded are inversely related, all other things being equal.

Assumptions’ of law of demand:

1). Customer income level should remain constant in all times.

2). Tastes and preference of consumers should not change.

3). Prices of other goods should remain constant.

4). No new substitute for the commodity.

5). There should not be any expectation of price raise in future.

Price

Demand

The above diagram shows the relation between demand and price of the commodity as well. We can see that supply curve downward sloping from left to right.

(Pro Abdul Rasheed, Introduction to Economics, Poorva Publications 2003)

Law of Supply

This law establishes the relationship between the price of the commodity and its supply. According to this law other things being equal, the supply of commodity increases with an increase in its price and decreases with a fall in price. It shows the relation between price and supply is positive and direct. This law explains or states that, when the price of product began to increases, the producer who producing particular product will urge to produce more and hence to supply more materials and when price began to fall he will cut his supply from the suppliers.

Some assumptions of law of supply:

No change in the price of factors of production

No change in the price of related goods.

No change in the goals of the firm.

Producers do not expect any change in the price of commodity in near future.

No change in the state of technology.

No change in the number of producers.

No change in government policies like tax.

Price

Supply curve

Supply

The above diagram shows that how the supply of goods varying on the price of the commodity. Supply curve moving upward from right to left.

Above we clearly described about how the demand and supply affecting on its variation of price.

Now let’s make an experiment about how the market of computers affecting on its price and demand. Or why price of computers are low even though there is high demand for the computers. (Janeen R. Adil, Supply and Demand, Capstone Press, 2006.)

Factors affecting price and quantity demanded for computers.

Taste and preference of Consumers:

There are some tastes and preference for consumers in their products or commodities. When the product can meet the preference of the consumers they will opt for that particular product and will began to demand more that product. Likewise when a product fails to fulfill the taste of the consumers, the product will be flop and consumers would not opt for the product. So the satisfaction of consumer preference is most important thing for any product. So each company should have to make proper market analysis about the taste and preference of consumers before a product is going to launch.

In case of computers:

Consumers have high taste and preference on computers. They preferring more attributes on computers now a days. They are more preferred about style, color, weight, performance etc. now plenty of computers are available with all feature and attributes. Every brand can meet the taste of consumers. Hence it is very clear that consumer taste and preference have critical role in demand for a commodity.

Taste of consumer

Demand

The above graph shows that the demand curve has shifted from D1 to D2. That is the there is a positive shift or right shift in the computer sales.

Price of complimentary products

Any product that comes along with the main product is known as complementary product. There is a direct relation between main product and its complementary product. That means when there is a hike in price of the complimentary product; the price of main product also will increase. It also affects change in demand in an inverse relation.

In the case of computer:

Computers coming with a lot accessories in the market. So when there is a reduction in the price of accessories, the price of computer will fall and hence the demand for the computers will be high in the market.

While we analyzing about today’s computer market, the price of its accessories such as hard disk, processor, RAM, monitor etc. are decreasing year by year. So it is helping to fall in the price of computers, and increase in the demand of computers.

Price of complimentary product

Demand

The above graph shows that there is a shift in demand to the right.

Computers consist of a number of complimentary products. One of the main complimentary products of computer is micro processor. Intel is one of the most famous micro processor producers. The following table shows the change in price of Intel processors in the market.

Price

Computer

Processor

From the above graph, we can understand that the prices of processor are going down. Because of the price of processors is going down, the price of computers is also going down.

Factors affecting price and Supply for computers:

Technology

Supply of commodity is greatly affected by Technological changes happening around. Technology is an ever changing factor. When there is a advancement in technology, the new machines would be available and the cost of production will be reduced. So producers getting an opportunity to supply and produce more at same cost and it will lead to hike of profit of the company.

In the case of computers:

Today technology has improved a lot. As result of technological improvement, the supply of computers has increased. In production of computers technological advancement is effected a lot. Now a day higher performance computers can be produced with low cost. The power consumption of modern computers are more because of new technology invented in the field of computer manufacturing. We all know that invention of microchips has brought a tremendous change in the size of computers. Atom processor is another example for reducing the cost of processors and hence computers. Invention of LCD system caused to increment of laptop computers.

So technological advancement will reduce the cost and price of computers and there will have more demand in computer market

Technology

S1 S2 supply

The above graph show that the increase in supply of the computer. That is the supply curve shifted to right (QS1 to QS2) which is a positive shift. That we can also see the price it may or may not be change. Even though the quantity supplied increase allots.

Cost of Factors of Production:

Factors of production include land, labor, capital and organizer. In the supply of product factors of production also have vital role. When there is a fall in the price of factors of production that will lead to increase in the supply of commodities.

In the case of computer:

In initial stage it was very expensive to manufacture a computer. But today the cost of factors of production such as labor, capital has reduced a lot. Today computers can be produced with low cost. So the supply of companies in computer field has dramatically increased and company can produce the computers more and more with same cost. So, ‘factors of production’ and supply has a positive impact.

Factors of production

S1 S2 supply

In above diagram, the supply curve shows a positive shift to the right. That is the curve shifted from S1 to S2. So there is a high increase in the quantity supply of computer.

Competitors:

Competitors are the producers who producing the same category of product. The number of producer or competitor is another factor that affects the supply of a commodity. When, there is more number of sellers in the market, there will have more supply of the particular product in the market. Thus there should be high competition among sellers. Here the producers try to make advantages of competition arising in the market.

In the case of computer:

We know that there are a number of producers in computer market like Sony, HP, Toshiba, Dell, Apple, Acer, Lenovo, etc. Thus there is high competition exist in the market. For competing and sustaining in the market they are trying to adopt new strategies. Taking price leader ship by low cost is the current trend in computer market. They also ensure their product availability in the market by supplying more and more computer in the market.

Competition

S! S2 Supply

The above graph shows a positive shift or right shift from S1 to S2. That is it means the increase in the quantity of supply of computer.

Equilibrium point:

Equilibrium point is a point there is no profit and no loss. In other words equilibrium point is the point by which supply and demand for a commodity becomes equal. It may happen when the price of the commodity reaches in a particular value. Thus the price where the supply and demand of a commodity is equal is known as equilibrium price. In short, we can say that in Equilibrium there is no excess demand and excess supply.

Price determinants of computer

We can see how the price of the computer has gone down by analyzing the equilibrium chart using demand and supply.

We already saw that the demand curve shift in to right. The following graph shows the demand curve equilibrium;

Price Price

Equilibrium price

Equilibrium Demand

From the above graph, we can see that the demand shifts right and the price goes up. But this is not true as the demand side factor is not the only factor that determines the price.

From the supply side, we can draw the graph as

Price

P1 S2

P2 Price

Equilibrium Supply

The above graph shows that the price of computer goes down when the supply increases as the supply shifts to the right (S1 to S2). This shows that the price of the computers has gone down only when the supply changes which is not relevant to what we need.

Here we can take both demand and supply. It shows from the above analysis that the computer price is mainly affected by the supply than the demand factors. The different factors of supply (technology, number of producers, factors of production) makes the supply curve shift at a high rate to the right. The factors of demand ( consumers Preference, Price of complementary product) makes the demand curve shifts to the right but at a very small rate as it doesn’t have as much impact as the supply curve has.

It is clear that, with the effect of demand and supply of the computers the price of computers has gone down. It shows that both supply and demand curve shifted in to right. This is a positive shift in both demand and supply curve. Thus we have proved that the price of the computer goes down with the increase in demand and supply.

Conclusion

The law of demand and supply describes that how the demand and supply of a commodity affected with various factors. Apart from demand there are many factors to be considered to determine the price of any commodity

In the case of computers in modern market the prices are low even though there is high demand. It is so because, rather than price of the commodity there are other factors to be considered to determine the demand. Apart from the demand the supply need to be considered to determine the price of a commodity. So in short, in case of computers to determine the price we have to take both demand and supply in to consideration. We can see that the price of computer has gone down when demand and supply increased.

Reference

Pro John Samuel, Micro and Macro Economics, New star Publication, 2000

Pro Abdul Rasheed, Introduction to Economics, Poorva Publications 2003.

Janeen R. Adil, Supply and Demand, Capstone Press, 2006.

Franklin M. Fisher, Disequilibrium foundations of equilibrium economics, Cambridge University Press, 1989

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