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Determining Factors Of Demand And Price Of Computers Economics Essay

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Introduction

Prehistoric men never had computers and internet but its appear that they wanted to count and make calculations accurately. The limits of man body's ten fingers, ten toes caused early people to build something to help with those mathematics. Let's stop here for a moment and consider a typical day in our life. For breakfast you might have sat on a chair from a tree grown in Sweden, eaten bread made in a local bakery from wheat grown in the USA and beef from cows raised in Ireland packaged in plastic bags made in the UK. We use a computer, assembled and packaged in China but electronic chips designed in USA, so people's needs and choices created such a behavioral or social science where they use scarce resources that nature and previous generations have provided. (Merchantos 2010), (Heather et al, 1999)

In Economics, the market relations between prospective sellers and buyers of a good are known as Demand and Supply. The price and quantity sold in a market is determined by the Demand and Supply model. James Denham-Steuart first used the phrase supply demand in his book named Inquiry in to the Political Economy, published in 1767. There is always a change in Demand and Supply of a particular product in a market due to many reasons. There are few products whose demand or supply doesn't change with respect to price. These are known as inelastic products. A very good example of perfectly inelastic product is Penicillin. There are elastic products too which demand changes with respect to price and people don't hesitate to opt for a cheaper alternative. Tea and coffee are the best example of an elastic product. (Statemasters 2010)

This theory focuses on the factors that determine the Demand and Supply of Personal Computers in a free market. The report has been prepared through in-depth analysis of the market. The yearly price and sales of PC's and through various suppliers in the market were examined and collected obtain this report.

2. Market Structure of Computers

In year 2001, 125 m PC were transported, compared to 48 thousand in year 1977. 500 million or more than PC were in use in 2002 and a huge number of one billion personal computers had already been shipped worldwide since in the mid of 1970. Seventy five percent were professional or business related, the rest of the personal computer were sold for personal or domestic use. 81.5 percent of PC had been sold, desktop computers, 16.4 percent laptops and 2.1 percent servers. (Translationdirectory 2010) We can elaborate easily with help of below table :

Table 1 : PC's shipment by year and numbers

Year

PC's shipped in Numbers

1977

48000

2001

125 million

2002 (PC's in use)

500 million

Total shipped up to 2002

1.014 billion

(Cnetnews 2002)

Table 2 : PC's shipment by Region

Region

Shipment Share

United States

38.8 %

Western Europe

24.6%

Asia-Pacific

11.4%

Japan

9 %

Latin America

4.1 %

Rest of the world

11.8 %

(JeremyReimer 2009)

Table 3 : The Global computer shipment by year

Year

Numbers

2007

264 million

2006

239 million

2005

205 million

2004

183 million

2003

152.6 million

2002

136.7 million

2001

133.5 million

2000

140.2 million

1999

100 million

1998

93.3 million

(Pcworld 2007)

Bigger markets, for example, United States, Europe, Canada, Japan accounted for fifty five percent worldwide installed PC's. New rising markets were predicted to make twice their installed PC's by 2013 and to take seventy percent of the second billion PC's. Nearly 180 m PC were predicted to be replaced and 35 m to be destroyed into landfill in year 2008. The whole base grew as 12 percent annual rate. In the last, in future there is an increasing number of PC import and export worldwide. (Jeremyreimer 2009)

Factors Affecting Demand of Personal Computers

3.1 Price of Personal Computers

In 1976 Apple took a giant step in the international market producing personal computers and introduced Apple I at the Homebrew Computer Club, California with a price of $ 666.66 followed on with Apple II for $ 1,195 including 16K of RAM. Gradually increasing numbers of computers helped Microsoft sales for 1989, reached by remarkable $ 1 billion by making software programs for micro and network computers leaving other software companies behind. (Atariaarchives 2010)

The demand of Personal Computers and its accessories will gradually increase in future. There are various manufactures are available in the market today who are selling desktop computers, Laptops and network servers. Table below is giving an overview different suppliers in the market and their share of market occupation :

Table 4 . PC Volume and Market Share

Netbook PC Brand

Volume (millions)

Market Share

Acer

2.15

38.30 %

Asus

1.7

30.30 %

HP

0.33

5.80 %

MSI

0.32

5.70 %

Dell

0.16

2.80 %

OLPC (One laptop per child)

0.13

2.30 %

Medion

0.13

2.30 %

Kohjinsha

0.06

1.00 %

Intel (Classmate Refer Design)

0.06

1.00 %

Lenovo

0.04

0.70 %

Toshiba

0.03

0.50 %

All others

0.51

9.10 %

Total

5.61

100.00 %

(Displaysearch 2008)

Manufacturers are trying to launch their products equipped with latest technologies to take part in a market full of competition. Computers have become nuts and bolts of almost every area of defense related issues, industries, administration, medical science etc., human needs will be demanding electronic machines full of technology to the manufacturers in the future.

Figure 1 shows a shift to the right (increase in demand)

The price of Personal Computer's price has been coming down year by year as more competitors entered in market with their products, new brain storming ideas and innovation in research and development is still going on, therefore there is a increase in demand but if price gets higher then there would be less demand for personal computers.

3.2 Price of the Substitute (Laptops) :

Those goods which satisfy same needs or goals of a product are called substitutes. Substitute example would be a laptop for Personal Computer. With increased laptop prices, people would shift from laptop to pc, and with decreased laptop prices, they would shift from pc to laptop. Laptops are substitutes of Personal Computers and are very hand today, for a various reasons. These reasons give considerations as to what one should find for when start buying a laptop.

Most evident reasons to get laptops are that people prefer laptops to desktop machines due to their volume and construction. Laptops, design vise, are pretty slim, smaller and more compact, so they ensure portability. In the market many laptops can actually be found beneath £400 at the right outlets and at the right time period. Buyers like laptops over desktops because that they can work on a long-live battery and do not need a wire to access the Internet.

Changes in government policies in developing countries like India and China can affect the potential growth rates in their markets. For instance, the removal of import duties on laptops in India in 2005 was one of the factors that resulted in a growth of 94% in laptop sales in 2005. (Accessmylibrary 2006)

(Applematters 2010)

Since the laptop industry represents a segment of the broader personal computer (PC) market, data regarding the PC industry is also relevant in the analysis of the laptop industry. If price of substitute is increased then demand for that product would increase as well, which we can elaborate in the following graph :

Figure 2 shows shift to the right (increase in demand)

Similarly if the price of complements increase for a specific product, demand for personal computers would get less and with low prices consumption of pc would be high, e.g., complements for a personal computer are monitor, printer, mouse, wifi broadband connections, therefore if complements prices are higher then demand for PC's would decrease which we can describe easily with a demand curve :

Figure 3 shows shift to the left (decrease in demand)

Prices of complements and substitutes play an important role of any product life-cycle. These two factors substitute and complements can effect any product demand in the market in good or bad way. Consequently, if PC's price is increased then price of laptop would increase as well and same with complements. demand would decrease and with decreased price of its complements demand for personal computer would increase as well.

3.3 Income :

Income is saving and consumption opportunity acquired by a person within a given time period, which is normally presented in monetary terms. However, domestically and individually, income is the plus of all the wages or salaries, profits gained, interests' payments, rents and other earnings gained time period.

The education and income level of users affects the brand perception of the computer manufacturers. As shown in Figure, households with higher income have higher percentages of Apple computers. Such households are also more likely able to afford (and want) Apple computers. This has allowed Apple to continue its strategy of premium pricing and performance compared to Windows PCs, while at the same time increasing its market share of the total laptop and PC market.

Metafacts (2008)

Income can increase in two ways, first is the wages, pension, funds, state benefits increase and second is if the inflation rate gets lower. Changes in income can increase and decrease demand of any good. We can explain goods in two following ways :

Normal Good

Inferior Good

A good whose demand increases with an increase in income is called a normal good, whereas a good whose demand decreases with an increase in income is called inferior product. For example with an increased income people would tend to eat personal computers or laptops rather than buying tape recorders or cd players. We can elaborate this law of demand with an increased income graph which would do shift right.

Figure 4 shows shift to the right (increase in demand)

With the help of above two figures we can explain that with increment of income, the demand for personal computers is increased, e.g., apple users have higher income because they can afford those prices.

3.4 Population :

Population increment is basically caused by natural increment, that is, the higher percentage of births over deaths. In some region, migration also make population increment when the amount of immigration increases the amount of emigration. The global human population is projected to grow from 6.83 billion in 2009 to 9.15 billion in 2050, an increase roughly equivalent to the population sizes of India and China combined in 2000 and nearly the size of the whole world population as it was in 1950. (Population-growth-migration 2010)

(OnlineOpinion 2003)

The economic reforms in China over the past two decades have brought outstanding growth, the development of a private sector and significant reform of the state-owned sector and productivity has improved dramatically. China has become a significant global economic player today which is operating as a source of regional and global production networks in computer and accessories. Increase in population, we can describe as shift right in the following diagram :

Figure 5 shows shift to the right (increase in demand)

Increase in population can increase demand of any normal good in economy and less supply for suppliers, as computer has become the base of every administration so demand would increase as well. Countries like Chine or India with huge population would need more computers because of the huge demand of people.

3.5 Future Price Expectations :

Future prices are direct responsible for increase or decrease of demand of any product. If people know that computer prices are going to be exceed in near future or there is going to be shortage of supply then they would start buying computers and demand for that product would increase in short term, figure below can elaborate increase of PC's demand according to future price expectations :

Figure 6 shows shift to the left (decrease in demand)

Figure above can clearly explain about future price increment which can increase the demand of personal computers in the market. If people come to know that price is increasing in the future then they would start buying and demand would increase short term.

Factors Effecting Supply of Personal Computer's

4.1 Production

In present world, Personal Computers are used for different tasks and are playing a very important role in fields of academics and business. The processes that are implemented to isolate the PC from several small particles to a desktop machine, are manufacturing facilities, assembling hardware, installation and test of software.

Manufacturers are also trying to design best computer (with price ranges) for the lowest cost and best usage. High quality parts are ordered from their manufacturing factories or outside supplier when a particular model is designed. Manufacturing people also note the demand of consumer, on daily basis to improve and establish efficient quantity for production. To stop faulty systems shipment, quality control is ensured properly. (Bestread 2007)

(Notmytribe 2008)

Having a good usage of production factors, mining the lands, good resources of water, crude oil, electricity, better wages, pension plans and of course manpower, all can boost to supply, we can explain with the following graph :

Figure7 shows shift to the right (increase in supply)

The usefulness of the productive factors and subsequent consumer demand for better goods would give pressure on manufactures and supplier to design more reliable, high quality products in future years. Goods available usage of factors of production can give a boost producing supply of any product.

4.2 Technology :

Technology is the main tool of science for an any industrial or commercial purpose. The Computers have literally revolutionized all the ways people doing. In previous last decade, Internet absolutely creatednew ways of businesses where people do interaction. Technology is helping nearly every fields production, it revolutionized computer industry and it started giving more production. Ringsurf(2010)

Factors involved in Technology

4.2.1 Innovation : Throughout research and development in technology, micro-chips industry and other relevant accessories, computer industry is getting new innovative and brainstorming ideas to develop new technology by increasing its functionality and reducing its volume.

4.2.2 Structural and Mechanical Systems : Vehicles, underground stations, hydraulic systems, hydroelectric power plant, and the steam engine are just three of the many important mechanical technology achievements which are giving huge production in relative fields. Computers based robotics systems are working in many industries in developed countries, e.g., Japan, USA, Canada, Sweden and Germany. Ringsurf(2010)

4.2.3 Education : Free education provider countries like Germany and Sweden having Innovation and new ideas among all fields through research among students. All these factors allow consumers to take fully advantage of the products and their relative features. With increasing technology issues there would be more supply in the market, which we can explain with the following graph :

Figure 8 shows shift to the right (increase in supply)

In the end, technology is playing very important role in our daily life through being smart and more useful. Its upto us how we decide to use it. Every day manufacturers are doing research and analysis on relative products to give more output to the consumers. It is all moved to designing and assembling next generation of video graphic games and consoles, or the latest in self-guided robots based weaponry in battlefield, it's all human inventions that will release human consequences as well.

4.3 Preferences against Supply :

As computer have become the nuts and bolts of every corner of life from schools to universities and from local security offices to national security. There are many preferences reasons which can affect computers supply in the market. :

4.3.1 Natural disasters: Natural disasters can effect supply of any product, e.g., floods, diseases, electricity shortfalls can also effect decreased supply.

4.3.2 Political factor: If country has gone into a war-torn situation then there is lack of supply. In Canada, the enforcement of the WEEE (Waste Electrical and Electronic Equipment) Directive will increase the cost of computers by $15. Environment-agency(2010)

4.3.3 Labor Union: Labor is the backbone of any country's economy, without labor no any factory or industry can run, except if it is fully mechanical-robotics operated. If labor union demands an increment in wages or pension or other requirements, this can seriously affect price and supply of that particular product. Figure below can show all this in more detail:

Figure 9 shows shift to the right (decrease in demand)

Above given factors can affect supply of any product in an industry and also increase in demand. By keeping well maintained we can overcome these supply issues.

Falling price of Personal Computers and increasing Demand

Personal Computer's prices have been coming down in the past few decades. Innovation in technology, competition, production and many other factors have effected price, demand and supply of PC's. If stability of any country's income sustains then the Personal Computer's price would remain as same it is before but if economy's movement is downwards then its fluctuate price of PC's as well. We can assume in an open market where personal computer's prices are continuously falling, that there is quite big competition in the market as more suppliers are coming on. Therefore demand of PC's would get higher with advertisements through different communication channels. Finding information has become so easy ever with a click of a button so people are trying to less down budget on buying Personal Computers. For example, in UK, Pcworld and Curry's digital are leading the PC market, but with the emergence of Comet other companies decreased their prices and people were more able to buy PC's than ever before, which we explain with the following graph:

Above diagram shows decrease in price which has effected increment in demand and supply as well due to competition, technology and production. Price became cheaper and more competitors entered in market which reflected the price downwards and increased demand and supply shift to the right.

Conclusion :

Economics' study is basically about human being's behaviour in sense to gain limited resources to overcome unlimited needs. Production tells us ways that how economy can give its assets to get output. With this knowledge, countries will move for specialization in trade products.

Demand and supply have a strong relation with price, as price gets high, quantity for that demand would decrease and quantity for supply would be high. Many factors effect demand and supply of a product in a market. Demand for a product would increase if price get cheaper but then supply would get less, as more people would buy. Price of substitutes and complements also play an important part in product life cycle.

Countries with higher natural resources have large production with help of upcoming technology. Natural disasters like floods, diseases can effect demand and supply straightway. Political situation of any country can have direct effects, if manufacturers or supplier have less tax to pay then price would get low and demand would be high.

In the future, Personal Computers demand is forecasted to grow to a market share of 20% of the global PC's industry by 2010, either its a PC or Laptop, its all depend on personal or corporation needs. Laptops have affected the industry in two ways: a price reduction and a change in consumer preference. Thus, the continuing long-term trend of decreasing profits in spite of increased sales volume has forced companies to adjust their business models to maintain profitability. PC manufacturers will continue to have increased growth in the laptop segment, in part due to the international market and netbooks, but will be faced with decreasing profit margins. It is not clear whether the future demand for Personal Computers is sustainable and therefore, in the long term manufacturers will have to adapt by increasing the focus on the services segment.


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