Posted by Mel on .
Over the last two decades, the price of personal computers in real as well as nominal terms has declined markedly. Does this mean that the personal computer industry is decreasing-cost and that the long run supply curve for personal computers is downward sloping?
Am I correct with this answer?
No one can say for sure, with more firms entering the market it drives the price down even though the demand for the product increases. Economists imply this is a rise of competition from an initial monopoly position and not a movement along an industry’s long run supply curve.
I am not an economics person, however, three factors in PC prices seems to me to predominate: Technical innovation, in memory, displays, and LSI chips; Moving assembly from the US to SE Asia; and reduced transportation costs mainly due to efficiency.
As bobpursley noted, technology is a major factor in reducing costs.
A simple Supply/Demand graph:
1. Given a market with equilibrium point e;
2. Supply shifts right due to technology;
3. Price decreases, output increases.
I don't particularly care for your answer. Sorry.
Here is my answer:
The decline in the nominal price of personal computers is almost exclusively due to the multitude of improved technologies in production. The improved technologies keeps shifting out the supply curve; and so, we observe decreases in prices.
The supply curve for computers (or anything else for that matter) should be measured with fixed technologies. In such a measurement, the long-run supply would certainly be upward sloping.