The relationship between price and quantity demanded

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Demand and Supply is perhaps one of the most fundamental concepts of economics and it is the backbone of a market economy.Demand to how much quantity of a product or service is desired by buyers.The quantity demanded is the amount of a product people are willing to buy at a certain price;the relationship between price and quantity demanded is known as the demand relationship.Supply represents how much the market can offer.The quantity supplied refers to the amount of a certain good procedures are willing to supply when receiving a certain price.The correlation between price and how much of a good or service is supplied to the market is known as the supply relationship.Price,therefore, is a reflection of supply and demand.

HISTORY AND MARKET OF COMPUTERS:

First we have to know the history of computers and its impact on the market.Computers are the great technological and scientific innovation of the last half of the twentieth century.At that time when computers were invented their prices were very high.It was vey costly to make the computers.The sizes of the computers were huge and there were very few people who knew how to operate it and that was the reason that demand at that time was minimum.Computers at that time were only used by the large organizations,army,secret services etc.After the reaserches of the scientists technology of the computers became better and better day by day.Computers became available in reduced sizes.With the continued advancement in technology older ones have been replaced by the more efficient,powerful and faster ones.This drawed the attention of the people and they started to realise the needs of the computers so they plunged toward them and this increased the demand of computers in the market.Because of the increasing demand of the computers,number of companies have also came forward to gain the profit from this computer industry and then during the past 10 to 15 years computers have become the necessity of the human beings because of the complex solutions in seconds.Now computer has become the basic necessity of human life.Nowadays everday life without the computers seems to be impossible.This industry has grown dramatically and the profits earned from computer industry is unimaginable.This has opened the doors for maney producers in order to earn the profit in the market.

FACTORS OF DEMAND :

The concerned report will explain the factors that determine the price of computers.Following are the two factors :-

1.Population 2.Preferences

1.Population:

It is a very important factor which states that increase in population will result in increase in demand, as we know that world population is continuously increasing and computer has become basic need of the human life so its demand will also increase as increase in worlds population.The fastest rate of world population growth were seen briefly during the 1960`s and 1970`s. 86 million persons each year in late 1980s and world population increases to six billion mark on 12 October 1999, these figures show the increase growth in world population and this population factor could be the one that increases the demand of computers in the market.The demand of the computers in this period has also increased due to the growth in population which means that the population factor has an impact on the market of computers.Now with the help of a graph lets see how the price of the computer affects when the demand increases because of the increase in the population.In the graph below the demand is taken along x-axis and price is taken along y-axis and main product is computer and the initial demand and supply curves are D and S respectively, when the population increases demand increases and the whole demand curve shifted to the right which shows increase in the demand and it is represented by D1 . this shift in the demand curve will result in the equilibrium in market because consumers are also willing to buy at a new price(P1) which is greater than Pe which is the price at the old equilibrium point,increase in population and demand will result in increase in price.

Diagram:

Price

D1

S

S

D

P 1

Pe

Qd

2.Preferences:

This is also one of the most important factors which affects the price of the computer in the market.In early days when computers were newly invented people were not aware of the use of computers and its benefits .At that time it was new, very expensive, much complex, their speed was also a problem and was very difficult to use it, but as the time passed away and with continuous advancement in technology computers became more and more powerful and are capable to do complex calculations in just fractions of seconds and they became very productive in our lives, then people started realising that they can be very helpful in everyday life by using them as a source of education, entertainment, so due to this reason more and more people became aware of the benefits of computers for example in 1984 APPLE introduces computer called APPLE MACINTOSH a computer which uses Graphical User Interface and in about six months sales of the computer reached 100,000, this shows how the introduction of new technology in computers attracted the consumers and turned the preference in favour so that suddenly in six months sale of this computer increased so because of the usages and benefits of computers preference was turned in favour of the computers and this increases the demand of computers in a free market and in 1986, 30 million computers were in use in United States and in 1988 this number climbs upto 45 million which shows year by year increase in demand of computers, in the period of 1980 to late 1990s with the continuous increase in demand prices were also high and one reason for that was there were few manufacturers so they had monopoly at that time and there was other reasons such as every new model of computer in market had more specifications then the older one so naturally its price should be greater than the old ones, during that period companies had made huge profits for example in 1986 Microsoft shares sold at $21 per share and in 1987 Microsoft shares hit $100 per share, now we will illustrate this factor with the aid of a diagram our main product is computer take demand of computer on x-axis and price on y- axis , curves D and S are the initial demand and supply curves when the demand was 30 million in year 1986 at the equilibrium price Pe as the preference was in favour of computers the demanded increased to 45 million in year 1988 which is shown as the shift to the right by the demand curve and lets represent this new curve as D1, now it is shown that the new equilibrium in market is set at the price P1 which is greater than Pe.

Diagram:

S

PRICE

Qd

D

D 1

P1

Pe

30

45

FACTORS OF SUPPLY :

1.PRODUCTION 2.TECHNOLOGY

1.PRODUCTION:

Lets disscuss about the this factor of supply which determines the price of computer in free market. The first one is the factors of production(land, labour, capital). When computers were newly invented in 1980s they were expensive and had a limited supply because at that time they were produced in the developed countries like United States of America and Britain where these factors of production were costly for the producers so its ultimate impact was on the price and supply of personal computers because when the cost of product rises suppliers will increase the price or reduces supply in order to achieve the desired profit. As the time passed away companies began to shift their manufacturing plants in those countries where the manufacturing cost is less for example in countries like China and India where the labour is much cheaper than the countries like USA and UK so whenever cost in producing a product is less suppliers are happy to produce maximum number of product so due to this

reason in recent years supply of computer has increased in market because companies have moved to the countries where cost in making the computer is lesser than as compared to other countries, so when supply of computers increased in market as a result price decreased in the market so due to this reason in recent years price of computers has fallen because of increase in supply as because of supply price is reduced it increased the demand of computers in market as well. Now let’s look how this has happened with the help of diagram, take quantity supplied(Qs) on x-axis and price on y axis. The initial demand and supply curves are represented by D and S respectively and quantity supplied at old equilibrium is represented by (Qse) when cost is decreased whole supply increases in the market and it shifts to the right of the initial supply curve which is represented by S1, so it will resulted in the new equilibrium in market at the quantity supplied( Qs1) and price( P1) which is less than the price( Pe) at old equilibrium point and as the price is decreased quantity demand increases which is shown by the movement along the demand curve from old equilibrium to the new point.

2.TECHNOLOGY:

The other main factor that determines the price of computer in the free market is the technology, advancement in technology always helps in reducing the cost of a certain product, as in case of computers in 1980s when they were newly invented and there wasn’t much technology available at that time as it is now so this is the one reason why prices were high during late 1980s and 1990s, but as with the day by day advancement in technology it helped the producers to reduce the cost of production of different components of computers, as we know that when the cost is reduced suppliers are happy to produce as much they can in order to achieve the maximum profit so this is the one reason why computers were expensive in 1980s and 1990s and in recent years their prices are low because of the advancement in technology their cost is low and suppliers have increased their supply in market as a result of that price became low and this has also increased the demand of computers because of low price and technological advancement and one of the important advancement is the speed at which computers process data. Now lets examine this factor with the help of diagram, take quantity supplied(Qs) on x-axis and price on y axis. The initial demand and supply curves are represented by D and S respectively and quantity supplied at old equilibrium is represented by (Qse) when cost is decreased whole supply increases in the market and it shifts to the right of the initial supply curve which is represented by S1, so it will resulted in the new equilibrium in market at the quantity supplied( Qs1) and price( P1) which is less than the price( Pe) at old equilibrium point and as the price is decreased quantity demand increases which is shown by the movement along the demand curve from old equilibrium point to the new equilibrium point.

Conclusion:

T his essay concludes that there are three main factors behind the fact that in recent years price of computer has fallen even with the increasing demand. The first factor is the Factors of production in which companies have setup in those countries where their cost of production is less so in this way they are increasing supply and as a result price has fallen and due to fall in price demand increased as shown in diagram(3). The second factor behind this situation is technology, with the advancement in technology cost of production is decreased so producers have increased supply of computers and in return price has fallen and similarly demand increased with the fall in price as shown in diagram(4). The third factor is the number of producers as during recent years many producers joined this market so ultimately increase in number of producers increase supply in market and with the increase in supply in market price has fallen and with the fall in price has also increased demand as shown in diagram.

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