BUSINESS ECONOMICS

Business Economics

Business Economics

1(a) Use supply and demand economic theory to explain why the price of laptop computers has fallen over the last two years

The rapid decline in laptop computers prices, analysts say is due in part to weak laptop computers sales worldwide last year and slowing demand in financially troubled Southeast Asia. Another important factor is software. Since at least the release of Microsoft's Windows 95, which required a Pentium-class chip to function well, there have been few popular programs that demand more powerful and more expensive processors - most software titles run just fine on the new cheaper systems. On top of that, the popularity of the Internet - now with 100 million users worldwide - is helping to offset the technological trend towards ever-increasing laptop computers power: a fast processor like Intel's recent Pentium II is not nearly so important to most Web surfers as the speed of their modems. "The industry has tried to convince people that 'you need a Pentium II, you need this or that,' but let's be honest," says Mark Bell, associate publisher of Monitor Magazine, Ontario laptop computers monthly. "How many people are running high-end graphic processing suites, or multiple pages of spreadsheets? They do word processing, e-mail, surf the Web, play a few games - and they don't need much processing power for that."

Laptop computers price cuts are nothing new, of course. The laptop computers industry is founded on the principle that microprocessor speeds will double every 18 months, and that as companies such as Intel introduce new and faster hardware, older systems will lose their value. Until recently, buying a cheap laptop computers usually meant buying an obsolete one, or settling for a clone based on cut-rate or even pirated components. These days, however, inexpensive machines are available even from highly regarded brand names in the office-equipment business: Compaq, Hewlett-Packard, IBM and Dell among them. While not equipped with cutting-edge technology, a typical budget system today features a 200 MHz or faster processor, a 24-speed CD-ROM drive, a minimum of two gigabytes of hard drive space and a fast modem - good enough to meet the needs of most home laptop computers users.

Computer software makers and parts suppliers are gearing prices down, too. In March, Corel Corp. of Ottawa cut prices on its WordPerfect office suites by as much as 50 per cent. Similarly, ATI Technologies Inc. of Thornhill, Ont. - one of the world's largest suppliers of video adapters - announced a low-cost graphics board specifically engineered for the entry-level laptop computers market. "Fundamentally, we love the sub-$1,000 laptop computers market," says Henry Quan, ATI's vice-president of corporate marketing. "It's increasing the total available size of the laptop computers market, and it's going to allow us to sell more graphics adapters."

In part, the double-streaming of Intel's product line is an attempt to protect its high-performance chips from price erosion. But some observers are skeptical that the gambit will work. Steve Baker, senior hardware analyst for laptop computers ...