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Computer Market - Essay Example

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Computer Market

Likewise, there are many other determinants of demand for a computer market such as knowledge and price barriers, social influences, lifestyle changes, and competitor and component prices, and so on.
The world's second largest personal computer maker, Dell, launched its latest Inspiron 1525 laptop computer that features 15.4-inch HD definition wide aspect display with 720p resolution, a Blue-ray player disc drive and an HDMI port along with the basic features. Dell has been quoted as an example to guide through the learning of the economics of computer pricing.
Recent years have seen fall in prices of personal computers even in the face of increasing demand. To study this further, it should be kept in mind that demand and supply control prices in a free market and increase in the supply of a product over demand causes the price of the product to fall.
A free market can be defined as a market where the sellers and the buyers of a product are free to determine the price of the product and this is done by the law of demand and supply. Free markets are in contrast to controlled markets where factors determining prices are influenced by external parties. In a free market, however, the demand and supply for a product determines whether the price of the product increases or decreases. ...
Determination of equilibrium price and quantity
The determination of price depends on the type of market organization the product belongs to. In a competitive market, the point of intersection of market demand and supply curves determines the price that will prevail in the market. As in other competitive markets, the forces of demand and supply determine computer prices. In the diagram, P* is the point of intersection of the demand and supply curves and is called the equilibrium price.

"The word 'equilibrium' denotes a state of rest from which there is no tendency to change" (Maddala and Miller, 2004). Price equilibrium occurs where the price that the buyers wish to buy matches the price that the sellers wish to sell at. The point C in the diagram describes a position of equilibrium in the market. When prices are above or below P*, i.e., P1 or P2, the market is said to be in disequilibrium.

As can be seen from the diagram, supporting the price above P* creates an excess supply, whereas, fixing the price below that causes excess demand. Therefore, an excess demand would lead to an increase in prices whereas excess supply would lead to decrease in prices.

When the demand for computers is high and there is shortage of supply of the same, then the balance of power shifts towards the seller. This is because of the excess demand in the market for good commodities.
Conversely when demand both for computers and complimenting products is weak and when there is excess supply of the same available on the market, then the power switches to potential buyers. This is because there is a wide choice of products available and the buyers can afford to negotiate prices ...Show more

Summary

A free market is characterized by the application of the forces of demand and supply to determine prices of commodities. Simply put, when the demand for a product increases, the price of the product increases and vice versa. In a free market, the price is fixed at the point where supply meets demand, as shown in the diagram below:
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