In the present study we show how the demand and supply of the computer market in whole world, there are lots of suppliers and lots of customers of personal computers but prices of personal computers are going down. Market volatility resulting from the supply and demand imbalance can give us the future of personal computers’ price. Manufacturer of personal computers cut off their profit to capture the market share and customers. There is lots of demand for the personal computers but demand for the low prices computers that is the reason supplier became alert of them and cut off their revenue and capture the market share. This peripheral market is always demanding of new technologies so suppliers takes advantages of this demand, in this economy personal computers are very much in demand but on the other hand production of personal computers are very high. Theories of economics always suggest that growing market always provides profit opportunities but when market concentrates it will decline. Personal computer market is highly volatile and cyclical in nature. The economic world is shaped by mechanisms, which relate to different factors and influences. To prove better understanding of economy event, analyze of different factors and influences. In the present study, we are going to check the free market of computers, its demand, supply, and prices emphasis on factors of demand and supply and economics basic rules of demand and supply.
What is free market?
Definition of free market:
A free market economy is an economy in which the allocation for resources is determined only by their supply and the demand for them. This is mainly a theoretical concept as every country, even capitalist ones, places some restrictions on the ownership and exchange of commodities.
(http://economics.about.com/cs/economicsglossary/g/free_market_e.htm ) (Date-14/04/2010)
A free market is what where government intervention is not working. It depends on basic rules of demand and supply. Government interference means of production, goods and services are used for prices. The concept of free market is quite different from traditional market, it is opposite from controlled market which is control by government. Free market always requires protection of property but it means no regulation of government or subsidiary. In the free market both buyers and sellers exchange price freely without any government holds. Prices are decided on the bases of buyers and sellers on principal of supply and demand. According to economic theories without control or regulate the market is less efficient. In a free market, consumer or customers are directly dealing with producers or suppliers so that there were no issues. As a result prices of product or services have been related with free transactions between both and more flexibility. Due to this more flexibility prices goes to decrease and quality goes to increase. Some of global solicitors are oppose this concept due to their revenue comes from regulated market, so they try to work with traditional market.
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Demand:
Demand is the quantity of good or service that consumers are willing and able to purchase at a given price in a given time period. For example, a group of people may buy 200 hot coffees, at a price of £1.25 each, in a morning. We would say that their demand for coffee at a price of £ 1.25 would be 200 units a morning.
The law of Demand
In the simple words as the price of a product falls, the quantity demanded of the product will usually increase. More simply words “the demand curve normally slopes downwards.” The law of demand may be illustrated using either a demand schedule or a demand curve.
Price of coffees(£)
Quantity demanded of coffees(units)
2.00
100
1.25
200
0.80
250
0.40
400
(Figure 1 A Demand curve for coffee) (Table 1 A Demand schedule for coffees)
The increase in demand is for two reasons:
Income effect
Substitution effect
The factors of the Demand:
According to the study of Jocelyn Blink and Ian Dorton, (2007) there are a numbers of factors that effecting the demand and lead to an actual shift to the demand curve to either the right or the left. Whenever we look at a change in one of the determinants, we always make the ceteris paribus assumption. The factors of demand are outlined below.
Income
Two types of products we have to consider when try to understand how a change in income affects the demand for product.
Normal goods
Inferior goods
The price of other product
There are three possible relationships between the products. They may be substituting each other, complements to each other, or unrelated.
Substitutes
Complements
Unrelated goods
Tastes
Tastes are not consider for this study but sometimes it takes part in demand to right move, so it can favor in product price to change.
The size of the population
Whenever population begins to grow, demand for almost products will increase and demand curve will start to shift to the right. This is simple rules of economy theory for population high demand high because more people want more products so demand will increase. More people want more products so we can explain the reason.
Change in the age structure of the population
If the age structure of the economy starts to altering, then this will affect the demand for certain products. For example, percentage of old people start to increase, demand of walking sticks. At the same time demand of sports equipments goes down.
Change in income distribution
If there is a change in the distribution of income, such that the relatively poor are better off and the rich slightly worse off, then there may be an increase in the demand for basic necessity goods.
Government policy change
Change in the direct taxes, i.e. taxes on income, may affect the money that people have to spend, and thus their demand. Also, government policies such as compulsory seat belts, compulsory wearing of bicycle helmets, or a ban on smoking in public places, would all affect demand in the relevant markets.
Seasonal change
Changes in seasons may lead to changes in the pattern of demand in the economy. For example, there will be more demand for warm coats in the winter and less demand for swimsuits.
The distinction between a movement along a demand curve and a shift of the demand curve
The demand curves shift to the right or left if it moves right then demand increase and it shift left then demand decrease.
Supply
Supply is the willingness and ability of producers to produce a quantity of a good or service at a given time period. For example, Firms may produce 4000 frozen burgers per week, at a price of £ 3 each. We would say that their supply of frozen burgers at a price of £ 3 would be 4000 units per week. The important point here is “willingness and ability”, as it was in demand.
The law of supply
The law of supply states that “as the price of a product rises, the quantity supplied of the product will usually increase, ceteris paribus”. In simple words “the supply curve normally inclines upwards”.
Price of Burgers(£)
Quantity supplied of burgers (units per week)
3.50
4400
3.00
4000
2.50
3500
2.00
2750
1.50
1750
(Table 2 a supply Schedule for burger) (Figure 3 a supply curve for burger)
As shown, the supply of frozen burgers increases as the price increases. A table showing such changes is known as a supply schedule. Same information shows in graph form. Supply curves are normally curved and get steeper as price rises. As we have seen, in the Law of Supply a change in the price of the product itself will lead to a change in the quantity supplied of the product, i.e. a movement along the existing supply curve.
The factors of Supply:
There are a number of factors that determine supply and lead to an actual shift to the supply curve to either the right or left. Whenever we see to a change in one of the factors, we always make the ceteris paribus assumption. If we do not, then the analysis becomes too complex
And it is almost impossible to identify the effect of a change in any one of the factor. The factors of supply are stated below.
The cost of factors of production
If any of the production factor is increase that result will be cost of firm high so they can supply less, shifting the supply curve to the left. For example, DRAM price goes high the computer prices will definitely go high.
The price of other products, which the producer could produce instead of the existing product.
Often, producers have a choice as to what they are going to produce. For example, a producer of personal computer may also able to produce office computers with the nominal change in production facilities. In this case, if the price of office computers rise, because there is more demand for them, then they may well be that the producer will be attracted by the higher prices and aim to supply more office computers and fewer personal computers.
The state of technology
Upgrading in the state of technology in a firm or an industry should lead to an increase in supply and thus a shift of the supply curve to the right. In the unlikely event (volcano, earth quack) of a backward step in the state technology, the supply curve would shift to the left.
Government intervention
Sometimes government interference in market as result of that supply will be change. Indirect taxes and subsidies are most common result of that. Whenever government changes in direct taxes may be it increase or decrease then supply curve changeable.
The distinction between a movement along a supply curve and a shift of the supply curve
As seen before sometimes there are movements along the existing supply curve and sometimes the supply curve actually shifts to the left or the right.
A change in the price of the good itself leads to a movement along the existing supply curve, since the price of the good is on one of the axes.
(Figure 4 the supply of computers)
A change in any other factors of supply will always lead to a shift of the supply curve to either the left or the right. As show in the below graph an increase in the cost of wages to manufacturing staff firm will have the effect of shifting the supply curve to the left from s to s1. So less will be supplied at each price and at the existing price of p supply will fall from q to q1.
(Figure 5 the supply of computers)
The determination of price
We have seen demand and supply concepts separately. Now we have to see how demand and supply interact to determine price.
The concept of market
Market the place where consumers and merchants settle the trade of some product or some related group of product. Entity markets differ in the degree of contest among the various consumers and merchants.
Changes in price when quantity demanded does not equal quantity supplied
According to study of Lipsey and Chrystal (2004) whenever there is excess demand, consumers are unable to buy all they wish to buy; whenever there is excess supply, firms are unable to sell all they wish sell. In both cases some agents will not be able to do what they would like do. There is a key driving force in markets, which might have a stronger claim to be called the law of demand and supply curves. To avoid confusion, we refer to this driving force as the rule of value alteration. This rule forecasts what will turn out to the market price when there is either excess demand or excess supply.
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According to study of Lipsey and Chrystal (2004)
“When supply exceeds demand, the market price will fall.
When demand exceeds supply, the market price will rise”
If there is excess supply, it means that producers cannot sell all that they wish to sell at the current price. They may then begin to offer to sell at lower prices, for example through clearance sales or discounts. If purchasers observe the glut of unsold output they may begin to offer lower prices.
(Figure 6 Determination of equilibrium)
As per study of Lipsey and Chrystal (2004) where the supply and demand curves intersect, is the price towards which the actual market price will tend. It called the equilibrium price: the price at which quantity demanded equals quantity supplied. The amount that is bought and sold at the equilibrium price is called the equilibrium quantity. The term ‘equilibrium’ means a state of balance; it occurs when desired purchases equal desired sakes and there are no forces tending to make anything change. When quantity demanded equals quantity supplied, we say that the market is in equilibrium. When quantity demanded does not equal quantity supplied, we say that the market is in disequilibrium.
As per study of economics we seen all the demand and supply rules of economics and what will happen when demand increase or decrease, same as supply increase or decrease, here we are going to prove that the demand and supply rules of economics is incorrect for the today’s personal computer market. In history of personal computers in dramatically increasing but from last few year prices of personal computers are going down but main thing is that demands of computers are going upward. Here we have to check out what are the reasons to those factors. Nowadays, suppliers of the personal computers trying to capture the market shares. Suppliers of the personal computers decrease the rates of the computers to cover the more and more consumers form the market. Here we have some data of the market past and present.
According to study of www.highbeam.com in 1990 a projected 9.5 million personal computers valued at nearly 28 billion were sold through sells channel in America. The fuming competition incited reduced prices for consumers.
According to www.highbeam.com Link Resources, by 1993, 67 percent of small businesses (100 employees) had Personal Computers. Another large market for Personal computers has been home worker households; in 1993, home worker households purchased more than two-thirds of the Personal Computers sold to the home market.
Bending Personal Computers sales can be responsible on numerous factors. In the recessionary economy of the early 2000s, businesses cut IT budgets dramatically.
According to a survey of 100 chief information officers (www.highbeam.com), conducted by Merrill Lynch & Co. as reported in Business Week in January 2003, 63 percent of those surveyed said that their companies were reducing their IT budgets below 5 percent of revenues, the current average for IT spending.
Online Reporter noted in the fall of 2002(www.highbeam.com): “This is 2002, not 1992. As far as the home market is concerned, people just aren’t going to put boxy, noisy, cable-ugly boxes in their living room. And the software is going to have to do a better job of integrating and implementing the consumer’s desired digital media technology and networking.” It is likely that both business and retail customers will wait to purchase another computer until software applications demand that they trade up.
Conclusion:
During the entirely assessment in the free market demand of personal computer are growing but the prices of them going down. The economics fundaments are prove here erroneous. We seen computer prices going down and demand going up, but the rules shows that when demand goes up then price also goes up. Market of the personal computers is so much volatile so producers of personal computers have to decrease the prices to steady in the market. There are so many changes in technology customers always attract to buy new technology so prices of running product are going down.
Demand and supply both are working on law of economy but in the free market consumers and suppliers both are companion so that is lots of troubles creates for them to dealing with each other.
http://business.highbeam.com/industry-reports/retail/computer-computer-software-stores Date- 16/04/2010
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