Market scenario: demand and supply Essay

The market situation is such that the production of computers and the pace of technology have outpaced the overall growth in demand for computers. More importantly the increase in the demand for computers has been in phases when a shift in demand has caused a slight increase in computer prices. The decline in prices is also evident because of transfer of technology amongst different regions of the globe. Many of the developing countries have received technology and cheaper computers from the developed world which has further increased the process of better technological innovation and ever declining prices of computers. There is also a case of understanding that computers are a type of machine that must be renovated or renewed periodically therefore many companies are willing to sell them at lower prices knowing that costumers will buy new machines in the future and they will invest in newer technology. Therefore computer manufacturers have been pursuing brand holding strategies which includes selling computers to buyers at competitive rates. If we look at the above diagram we get to know that as the demand increased and shifted to demand’ there was also a change in the supply curve toward the right which was driven by higher production because of newer technology, and lower costs. Another crucial aspect is related to how supply curve shifted to right by so much that it overcame the increase in demand and ensured that prices actually declined over the years. We also have to look at how prices declined over the years and boosted the quantity demanded of computers. From 1963 to 2003 real prices of computers have been consistently falling; this piece of statistic in itself explains how costs and eventually prices of computers have pushed down over the decades. The market mechanics are such in the technology industry that competition and the realization of new products and the addition of new companies keeps existing firms on their tows especially in terms of the cost of production as it is one of the major ways of increasing margins without hiking the prices. Availability or the threat that in the future better products will evenntually take away the market of the current products drives the technology business. This focus on innovation and creation of new products breeds efficiency and higher productivity that leads to better prices for the consumer. Conclusion It must be understood that the way technology market works is completely different from many traditional markets that we see around us. This is a result of the new dynamics that technology companies bring with them for instance companies like HP, IBM, Apple and Dell fight for different costumer target groups with products that cater to that particular target markets needs. The main point is that within these categories prices continue to fall even though there is an aggregate rise in demand. This increase in demand could be explained in two ways. Firstly, the increase in the quantity demanded continued to increase as a result of fall in prices. This occured because due to technological advancements and better production techniques cost of production fell and there was an increased demand for different variants, laptops and handheld devices which kept the competition robust and costs low. Secondly the increase in demand could be explained as the shift in the demand curve but this shift was supported by a stronger shift in the supply curve as a result of favorable supply factors throughout the world. The basic requirements to produce computers became more available both in terms of labor and raw material. Similarly newer technological advancements made older technologies redundant and this required even greater innovation and product creation. In which ever way we look at it the changes in both supply and demand have resulted in lower prices in the long-run. Another crucial aspect to product-led markets such as the computer market is that all new products must be adequately priced because companies earn profits due to volume and repeat purchases not because of one time purchases and high prices. This factor also pushes initial prices downward as companies want consumers to first like the product by atleast making the fist purchase. The PC market gets impacted by the launch of new items such as Ipods, handheld devices and other computing devices which can substitute the work of PCs therefore prices have continually seen a downward trend. The declining price trends point toward a healthy market and towards an industry which has evolved rapidly in the past few decade. It must be understood that ideally the steps of all firms are towards providing cheaper and more efficient products but raw material and other factor prices push the final products higher than previous level; but with the technology industry the scenario is kind of reversed, the cost of production has consistently declined more so because many companies were able to outsource so many of their production facilities to many parts of the world which offer relaxed regulations and cheaper labor. This has meant an even greater opportunity towards reduced costs of future products. Bibliography: Lipsey G. Richard & Chrystal K, 2007. Economics, Oxford University Press. Glazer, Hirshleifer, 2005. Price theory and applications: decisions, markets, and information, Cambridge University Press Sameulson, Nordhaus, 2005. Microeconomics. McGraw-Hill, 2005 Lipsey & Chrystal, 2007. The market for computer chips, viewed February 5, 2010 http://www. oup. com/uk/orc/bin/9780199286416/01student/interactive/lipsey_extra_ch03/page_01. htm Employment Policy Foundation, 2002. Economic Impact and Characteristics of the Computer Business Services Industry Cohen, Robert, 1995, The economic impact of information technology viewed February, 6 2010 < http://findarticles. com/p/articles/mi_m1094/is_n4_v30/ai_17603698/>.