Analysis of the personal computers market from the microeconomics` perspective - Essay Example

?Introduction The dynamic changes in today’s economy leads to the increasing demand for various technologies. This connects us to the prevailing requirement for personal computers. The business for making personal computers would therefore make sense and this is the reason why many producers try to surface from time to time and even create vibrant improvements. However, despite the increasing demand for personal computers in recent years, their price continues to move into a downward spiral. There are potential factors why this happened despite our familiarisation with the basic economic principle that would insist the idea that the potentially high demand for a certain product or service offering should remarkably increase its price (Welch and Welch, 2009, p.75). In this paper, the proponent tries to elaborate the important factors that are actually contributing to the downward fall of the market price for personal computers even in the midst of increasing demand for them. Prior to that, let us first review the basic economic relationship between price, supply and demand. Price, supply and demand The law of supply states that when there is a higher price involved, producers are more willing to produce more, and less if the associated price is low (Arnold, 2010, p.66). Furthermore, the principle behind this would lead us to understand the point that producers involved in the business would tend to maximise production in order to generate higher profitability (Kumar and Sharma, 1998, p.104). Below is the graphical representation showing the law of supply. Illustration 1. Law of supply The law of demand on the other hand states that the demand for a product or service offering is higher if people could afford it through a lower price, which means they are not more likely to buy something with a higher price, provided nothing changes (Landsburg, 2010, p.87). This idea would lead us to another point that people would be willing to buy for substitutes for other more expensive items (Carbaugh, 2010, p.49). Below is the graphical representation showing the law of demand. Illustration 2. Law of demand Now let us move forward to the following factors that determine personal computers’ decreasing price in the free market that at some point would help us understand more about the actual principle behind the relationship between price, supply and demand. A great number of competing producers There are many competing producers waiting for their chance towards competitive advantage, leading to the exploitation of price that could offer more significant customers’ advantage. This is based on the idea of Porter that the overall cost leadership could lead to competitive advantage because its bottom line is about the ability of each producer to set a competitive price for their actual product or service offering (Porter, 1998). As the competition increases, more producers are capable of offering their products or services at a remarkably lower price just to ensure their competitive edge and to guarantee a fundamental market share. This significantly happens in the market for personal computers. To cite an instance, it is not only Apple Incorporated that has the potential to produce personal computer products, but there are other companies around the world of the same industry, both local and international that are also capable of producing the same offerings and present them at lower prices. Based on the concept of the law of demand, a lower price is enticing from the point of view of customers. Thus, it is a natural market response to increase their demand especially for products that are of greater value for them and set at lower prices. According to law of demand, customers tend to find substitute products just to enjoy the benefit of acquring low prices. On the other hand, the price should therefore be obviously lower in the case of products with high volume of supply. This idea is relevant to the associated concept of the law of supply. In other words, the market for personal computer because of a healthy competition remarkably follows the pattern of law of supply and demand. As there are many competing producers that try to play in the actual competition in the free market for this industry, customers are bombarded with various products like personal computers at lower prices. Considering that personal computers are becoming necessity in today’s digital age, such products have momentarily become part of the basic commodities. Conerning this, a lower price associated with these product offerings should mean increase of demand since from the idea of law of supply, producers have the chance to maximise production in order to generate a higher profit. This explains the nature of increased supply in the market for personal computers. As shown in Illustration 3, as the demand for personal computers increases, the market price decreases because this could be clearly due to the increase of supply linked up with the great number of competing producers that are capable of adjusting the final price of their actual product offerings, leaving the advantage to the target customers. Illustration 3. Supply and demand curves for personal computers China’s market entrance China’s entrance into the market for personal computers created more chance to reduce price because of its associated employed low labour cost (Carbaugh, 2010, p.89). As a result, for other global and local companies in the same industry to be able to compete, they have to follow the prevailing standard that China took up. Therefore, affordability has become a key issue which tries to affect the price of computers in a free market. Extensive mass production is necessary in order to make use of the fixed cost and maximise it to ensure profitability. The bottom line, the final products could be offered at a substantially lower price, which eventually explains why personal computers have become known with increase affordability. In the given curves in Illustration 3, affordability could become a major factor why the demand increases. Certainly, the other companies would not want to be left behind and they should compete with China by ensuring mass production to guarantee profit, as earlier stated based on the concept of the law of supply. As supply increases, the demand also increases because of the associated affordability linked up with personal computers that are becoming part of the human needs in the digital era. However, the observation does not only stop here. The associated price for the actual personal computer also decreases because of the availability of higher supply in the market. As many entrants try to play in the industry for personal computing, the market is having a strong power to demand for lower price. To prevent each customer from looking for other alternatives and to ensure profitability, the ultimate way of each producer is to lower the price knowing that mass production by itself could lead them to an increase gain. After all, it is only by ensuring total disposal and achievement of certain revenue that they could still guarantee profit even if they present their offerings at a substantially lower or competitive price. Sensitivity to create and meet needs The sensitivity to the market needs and demands on the part of the producers of personal computers allows them to freely create a new model from time to time. The existence of new models every now and then leads to the devaluation of price of previously created types of personal computers. The market for personal computers is very dynamic. It changes from time to time as every competitor has become focused on how they could make a difference and ensure competitive advantage and potential market share. Innovation for instance would lead to the previously created products with mass production to reach at a lower price just to give way to a new discovered model to guarantee high market price and share. This is evident in the case of Apple Incorporated, a company known for its innovative product offerings including personal computers. One of the significant reasons why this company tries to innovate is to differentiate its product offerings and so that it could enjoy a higher price for them. However, other producers are also innovating, which means a new model of personal computer today may not be the most expensive in a few months or in the following year. Since there are many players in the personal computing industry, various models would increasingly become outmoded as new brand or styles are on their way. Producers have no other choice, but to dispose those old-fashioned models at lower prices to reach a target revenue and eventually profit. On the other hand, some customers are becoming sophisticated, allowing them to have increase demand for personal computers with linked affordability. This is another factor that could potentially explain the given curves in Illustration 3 and why the price for personal computers continues to decrease despite increasing demand. Conclusion There are factors that could help us determine the price of personal computers in a free market. As discussed, each of these factors have important functions in order for us to clearly understand the associated concept behind a demand curve or supply curve. The market for personal computers is therefore a significant venue for this academic exploration. References Arnold, R. A. (2010) Microeconomics. 10th ed. Mason: Cengage Learning. Carbaugh, R. J. (2010) Contemporary economics: An applications approach. 6th ed. Edmonds: M. E. Sharpe. Kumar, A., and Sharma, R. (1998) Managerial economics. New Delhi: Atlantic Publishers & Dist. Landsburg, S. (2010) Price theory and applications. 8th ed. Mason: Cengage Learning. Porter, M. E. (1998) Competitive strategy. New York: Free Press. Welch, P. J., and Welch, G. F. (2009) Economics: theory and practice. 9th ed. Hoboken: John Wiley & Sons. Read More