The relative price of personal computers has dropped drastically over time. would you explain this falling price in terms of demand or supply changes? what factors (at least 4) are likely to have caused the demand or supply shifts that did occur?
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The falling price of personal computers can be explained by both demand and supply changes. Let's break down the factors that contribute to these shifts:
1. Technological advancements: Technological progress plays a major role in reducing the cost of production and increasing efficiency in the computer industry. As technology improves, manufacturers can produce computers at a lower cost, resulting in a decrease in the supply curve and ultimately leading to lower prices.
2. Economies of scale: Over time, the production of personal computers has increased significantly due to economies of scale. As the quantity produced increases, manufacturers can take advantage of bulk purchasing, streamlined production processes, and more efficient distribution, which in turn lowers production costs. This shift in supply results in a downward shift in the supply curve, leading to lower prices.
3. Increased competition: The computer industry has become highly competitive with numerous manufacturers and brands vying for market share. Increased competition leads to price competition, with companies striving to offer better features and lower prices to attract customers. This intense competition exerts downward pressure on prices, resulting in a shift in the demand curve.
4. Changes in consumer preferences and income: Changes in consumer preferences and increases in disposable income can also impact the demand for personal computers. As technology becomes more integrated into our daily lives, computers have transitioned from luxury goods to essential tools. As a result, the demand for computers has increased, leading to a rightward shift in the demand curve. However, as consumers' income increases, they have more purchasing power, which increases the quantity demanded and may cause a downward shift in the demand curve, leading to lower prices.
It's important to note that these factors are mutually reinforcing. Technological advancements lead to increased competition, which encourages further technological developments and economies of scale. These shifts in demand and supply work together to drive down the relative price of personal computers over time.