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Principles Of Microeconomics Business

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Question:

Discuss about the Principles of Microeconomics Business.
 
 

Answer:

Introduction:

The demand for a product depends on a number of factors like the price of the product, the income of the individual, the availability and price of other related commodities like substitutes and complements and the tastes and preferences of the consumers. On the other hand, the primary determinants of the supply of a product is the demand structure in the market, the price of the product, the price of inputs and other intermediate goods used in the production process, the availability of the factors of production required to produce the commodity, etc. (Pindyck and Rubinfeld, 2009). The demand for desktops depends primarily on the price of desktops, the incomes of individuals who can generate the demand for desktops, the availability and price of other related goods like laptops and tablets which act as substitutes and internet, software programs, etc. that would be complementary and also the tastes and preferences of the potential consumers in the market. The supply of desktops will again depend on the ongoing market price of similar desktops in the market, the prices and availability of inputs required in the production process like capital and labour or the price of keyboards and mouse required to be supplied with the desktop (Varian, 2009).

Demand for Desktop

The demand for desktops essentially depends on the price of desktops. When the price of desktops increases, the demand for desktops will fall and vice versa given that the other factors determining demand are constant (Mankiw, 2009).

There is an inverse relationship between the price and the demand for desktops. Hence the demand for desktops with respect to price is represented by the downward sloping demand curve D. When the price was P, the demand for desktops was Q. when price increases to P’, the demand falls to Q’. Hence price determines the demand.

Another primary determinant of the demand is the income of the individuals who generate potential demand for desktops. As the income of consumers increase, the demand for desktops will increase (Varian, 2009). This is shown in the following figure:

As the income of the consumer increases, given the price, the demand curve shifts to the right. This is as shown in the figure by the movement from D to D’. For the same price P, the demand increases from Q to Q’ with the increase in the income. Thus there is a positive relationship between the demand for desktops and the income of consumers.

The demand for desktops will also depend on the price of related products like substitutes and complements. The primary substitute of desktop is laptop (Pindyck and Rubinfeld, 2009). When the price of laptop falls, the demand for desktops will shift to that of laptops. Laptop, as a device, is much more convenient to be used than a desktop. But people still purchase desktops because of the relatively mower price of the same. However, if the price of laptop falls, the demand for laptops will increase and that for desktops will fall. Another remote substitute can be tablets which serve at least some of the purpose. This is shown in the following figure:

A decline in the price of laptops reduces the demand for desktops as represented by the shift of the demand curve from D’ to D. Thus, even when the price of desktops remains the same, the demand for desktops falls from Q to Q’. Consumers will now substitute their purchase of desktops with that of laptops.

Another substitute for desktops will be the same kind of desktops produced by other competitors. Thus when the price fluctuates for one brand, people might shift to purchasing some other brand (Mankiw, 2014).

The complements of desktops may be an internet connection or some software programs that a person needs to use. Individuals primarily purchase desktops to enable the use of internet at home. However, if the cost of internet service is high, then the demand for desktops will fall because the main purpose of buying a desktop will not be solves if people cannot afford to purchase the internet connection (Varian, 2009). Again, let an individual wants to buy a desktop to install some software that he might want to learn. If the price of the software increases, the demand for the desktop will also increase again because the main purpose of purchasing the desktop will not be fulfilled. This is shown in the following diagram:

The figure is the same as the above case. When the price of internet connection or different software programs increase, the demand for these will fall. This fall in the demand for complementary goods will translate into a fall in the demand for desktops on the part of consumers who want to use both together. This is represented by a shift of the demand curve from D to D’. The quantity demanded of desktops falls from Q to Q’.

Thus cheaper substitute goods reduce the demand for desktops and cheaper complementary goods increases the demand for the same (Pindyck and Rubinfeld, 2009).

 

The demand for desktops is also determined by the tastes and preferences of consumers. The demand changes with changes in the tastes and preferences of potential consumers in the desktop markets. With changing economic conditions, the tastes and preferences of consumers change and hence their demand for desktops will also change. As and when the economy is advancing, there is an evident shift in the demand for desktops because people are demanding more of laptops due to the convenience involved. Hence the demand for desktops will fall.

The supply of desktops fundamentally depends on the price of desktops. When the market price increases, the supply of laptops will also increase as shown in the following diagram:

The curve S represents the supply of desktops with respect to the price. When the price is P, the supply is Q. As the price increases to P’ the supply also increases to Q’. Thus supply is positively relative to the tentative price in the market.

As the demand for a desktops rises in the market, the price increases in order to eliminate excess demand. However, the supply also adjusts in order to meet the increasing demand. Hence, when demand increases, the supply also rises (Mankiw, 2014).

The supply of desktops also depends on the price of inputs such as hardware, screens, etc. and keyboards, mouse etc. The cost of production basically determines the supply of desktops. As the cost of production increases, the supply of desktops will fall and vice versa. Thus is shown in the following diagram:

Given the price of desktops, when the cost of production increases, the supply curve shifts leftwards from S to S’. Thus, the supply of desktops will fall from Q to Q’. The reduction in the supply is due to a rise in the cost of production resulting from rising factor costs.

Conclusion

Thus, the demand and supply of desktops depend on a variety of factors. The changes in the two components will depend on the relative changes in all the given factors. The equilibrium in the desktop market is established when the demand for desktops in the market is exactly equal to the supply of desktops. In that case, there will be no excess demand or excess supply in the market (Varian, 2009). The market structure for desktops thus depends on all the determinants of demand and supply. It will change as and when any of these factors change. Other than the given factors, there will be many other random factors that might affect the demand or the supply on an occasional basis.

 

References

Pindyck, R. and Rubinfeld, D. (2009). Micreconomics. 7th ed. New Jersey: Prentice Hall.

Varian, H. (2009). Intermediate Microeconomics: A Modern Approach. 8th ed. New York: W. W. Norton & Company.

Mankiw, N.  (2014). Principles of Microeconomics. 7th ed. USA: South-Western College Pub.

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