Technological Advance

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Economic Principles

Q1) Computer chips are inputs in the production of computers. Because of the decreasing costs of inputs, the supply of computers increases. This relates to the law of supply where there is a direct relationship between the price and quantity supplied, ceteris paribus. The market supply curve is the horizontal summation of individual supply curves. Therefore there would be a rightward shift in the supply curve for computers from S to S1, resulting in higher quantity, lower price of computers and forming a new equilibrium point from E to E1.

S1
S1
S
S

E1
E1
E
E

D
D

Q2) Computer software is a complementary good to computers. Complementary good is a good that us jointly consumed with another good. As a result, there is an inverse relationship between a price change for one good (computer) and the demand for its complimentary good (computer software). This is also relates to the law of demand of which there is an inverse relationship between the price of a good or service and the quantity buyers are willing to purchase in a defined time period, ceteris paribus. With a lower price of computers, the demand for computer software would increase. This would be a rightward shift in the demand curve for computer software from D to D1, resulting in higher quantity, higher price for computer software.

S
S

E1
E1

E
E
D1
D1

D

D

E1
E1
E
E
D1
D1
D
D
S
S
Q3) Typewriters are substitute goods for computers (to the extent that the demand for typewriters still exists, people who use them can pretty much achieve the same, and more, by using computers instead). Substitute good refers to a good that competes with another good for consumer purchases. As a result, there is a direct relationship between a price change for one good and the demand for its competitor good. With a lower price for computer, the demand for typewriters would decrease from D to D1. This would be a leftward shift in the demand curve for...
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