BUSINESS ECONOMICS

Business Economics

Business Economics

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

Since 2001, the average cost of a laptop computer has fallen 39 percent, from £1,640 to £1,000 this year, according to a recent survey completed by the Wall Street Journal. The reason behind the falling prices is rising demand for laptops, mainly driven by the college market, as well as cheaper component prices. (Diebold 2007: 401)According to college polling firm Student Monitor, about three out of every four people of college age planning to buy a computer within 12 months are expecting to opt for a laptop. A possible reason for the spike in demand among college students could be the greater presence of wireless Internet on college campuses.

The price elasticity of demand measures how the quantity demanded responds to a change in the price when other factors remain the same; that is, the price elasticity of demand is calculated while moving along a single demand curve. But as the analysis points out, other factors did not remain the same. In particular, the price of desktop computers fell. The fall in the price of desktop computers decreased the demand for laptop computers. As a result, the increase in the quantity demanded created by the fall in the price of a laptop computer was offset by the decrease in quantity demanded created by the fall in the price of a desktop computer.

The elasticity of demand for desktop computer is almost surely larger than 0.77. The price elasticity of demand measures how the quantity demanded responds to a change in the price when other factors remain the same; that is, the price elasticity of demand is calculated while moving along a single demand curve. But as the analysis points out, other factors did not remain the same. In particular, the price of laptop computers fell. The fall in the price of laptop computers decreased the demand for desktop computers. As a result, the increase in the quantity demanded created by the fall in the price of a desktop computer was offset by the decrease To predict the change in demand for personal computers, several elasticities are needed. First, presuming that demands for both laptops and desktops are needed, the price elasticity of demand for both, (Neftci 2004:10)the income elasticity of demand for both, and the cross elasticity of demand are needed. Then predictions about the changes in price over the next five years for both laptops and desktops are needed as is a prediction for the change in income over the next five years.

By decreasing the supply, the price of illegal drugs will rise. Because the demand is inelastic,

The total amount spent on them will increase. b. On the one hand, because purchasing illegal drugs is a criminal activity, decreasing the amount of illegal drugs bought and sold decreases crime. On the other hand, many consumers of illegal drugs turn to criminal activities to raise ...