During the 1990s, technological advance reduced the cost of computer chips. Explain, with the use supply and demand diagrams, how the following markets are affected in terms of prices and quantities.
a) DEMAND- Demand refers 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 as showed on the graph below. Due to technological advance reducing the cost of computer chips, there is a downward shift on the demand curve. As there is price factor involved, there is a movement in the curve. As the price decreased, the total quantity demand increased. Moreover due to reduce cost in computer chips, the selling price has also been reduced therefore rise in consumers purchasing more computer chips. As the price is less than the equilibrium price there is an excess quantity demanded, which may course a shortage. SUPPLY- The quantity supplied refers to the amount of a certain good producers 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. In this case, movement to the right of the supply curve as the supply has also increased due to the decrease in cost of computer chips. As the selling price has decreased, the supply has increased because more people are willing and can afford to purchase the computer chip.
b) Demand- A computer software falls under a complementary good as it’s jointly consumed with computer chips. As a result, there is an inverse relationship between price changes for computer chips therefore the demand for its complementary good which in this case is computer software will decrease. If the price of computer software increased there would be upward...