Managerial Economics - Essay Example

? Managerial Economics Introduction Managerial economics refers to a field of study that utilizes micro economics concepts in making managerial decision. Additionally, managerial economics utilize the concepts of supply and demand in making analysis of consumers and suppliers behaviours as they interact with each (Stengel,2011). Managerial economic further explore the behaviour of consumers and producers as well as their impact to the economy. In above connection, managerial economics takes into consideration not only micro economic concept but also some components of macro economics. This is because organizations do not operate in isolation but rather they interact with external factors (Png and Lehman, 2007). Therefore, some components of macro economics must be taken into consideration. Among the macro economics components that should be taken into consideration include; economic cycles, consumers investments, savings, rates of exchange among other factor. This means that managerial economics specialist utilizes sophisticates tools and techniques in making prior planning as well as providing the best decision that can be adopted to solve a particular problem within and outside an a organization (Froeb and Mccann, 2010). Therefore, this study aims to investigate factors that determine the prices of computers in a free market as a well as reasons why computers prices have been experiencing a significant fall despite having higher demand. Additionally, the study will employ diagrams and data to perform a comprehensive analysis on why computers prices have been experiencing a significant fall despite increasing demand. Computer usage has made complex computations easier unlike before. For instance, during the ancient periods people used to make only simple computations using their fingers but with discovery computer things have changed drastically. This is because computers are not only utilized in making computation but are also utilized as a communication and managerial tools in various aspects of human life (Displaysearch, 2008) Factors that determine the prices of computers in a free market The world data statistics indicates that computers utilization of has been increasing significantly. For example in 1977 approximate 48 computers were exported by computer manufacturing firms into various destination, while in 2001, one hundred and twenty five million computers were shipped. In the year 2002, the computer usage increased by a figure of five hindered million (Cetnews, 2002). According to data report on Bloomberg by Ricadela, 2013, the shipment of computers decline globally by 14 percent. However, this trend has changed over the recent times. Research data indicates that approximate one billion personal computers were shipped globally between 2001 and 2002. Whereby, out of those computer70 percent were meant to be utilized in business while twenty five percent were to be used in homes for personal use. Additionally, out of all those computers shipped between these periods, approximate 82 percent were desk top while sixteen percent were laptops (Cetnews, 2002). The table below indicates the year and the computer the numbers of computer shipment. Year Numbers of Personal computer shipments 1977 48000 2000 125,000,000 2002 500,000,000 Source: (Cetnews, 2002) It can be scrutinized that computers shipment has been increasing as types elapse. This is because computer manufactures have came up with creative and innovative techniques of manufacturing different brands of computer that not only meat market demand but also meat the needs of different users ranging from personal use, business use, corporate uses among other applications (Displaysearch,2008). The table below displays various percentages of computer brands shipped into various destinations. Source: Jeremy Reimer, 2009 Computer Brands % of Computer shipment Dell 2.8% HP 5.8% Kohjinsha 1% Acer 38.3% Medion 3% Asus 30.3% Intel 1% MSI 5.7% Lenovo 0.7% Toshiba 0.5% Source: (Displaysearch, 2008) Therefore, Computer prices may be determined by numerous factors that affects market performance and the general price levels. Economist asserted that market forces such as demand and supply may determine commodity prices in a free market, for instance the prices computers and other commodities in a free market may be determine by supply and demand without government intervention (Mankiw,2011). The law of demand asserts that an increase in commodity prices may leads to a decrease a decrease in demand (ceteris paribus). On the contrary, an increase in commodity prices leads to an increase in supply when all the other things are held constant (Mankiw, 2011). The above relationship may be summarized diagrammatically as shown below. Figure A Figure B Computer Computer Prices Prices P2 Supply P2 Demand P1 P1 Qd2 Qd1 Qs1 Qs2 Quantity demanded quantity Supplied Diagram A, indicates that when prices of computer increases from P1 to p2,the quantity demanded decrease from Qd1 to Qd2.On the other hand, diagram B indicates that when computer prices increases from P1 to P2, the quantity supplied increases from Qs1 to Qs2. This means that an increase in price may lead to a decrease in quantity demanded other things constant. On the other hand, an increase in price may leads to an increase in supply of computers all other things kept constant. The two diagrams above substantiate the law of demand and supply with regard to the prices of computers and how they affect consumers and producers. In above connection, some of those factors affecting demand and supply of commodities may make supply and demand curve of a computer to be elastic, perfectly elastic, inelastic or perfectly inelastic. Inelastic demand may occur when a larger increase in commodity causes a smaller change in quantity demanded (Mankiw, 2011). On the other hand, elastic demand, involves a small change in commodity prices may cause a greater change in quantity demanded or supplied. This is because consumers are very sensitive to changes in price of some commodities. For instance, the demand of computers in this case had an elastic demand. This is because a significant fall in prices of computer caused a significant increase in quantity of computers demanded whereby; the quantity of computers demanded continue to rise despite a significant fall in computer prices. Elastic Demand Prices P1 A P2 B Qd1 Qd2 Quantity Demanded Source: (Ricadela, 2013). The above diagram indicates that as price fall from P1 to P2, the quantity demanded increased significantly from Qd1 to Qd2. This could be attributed to factors such as availability of substitutes such as laptops that could have been used instead of personal computers. When the price of desk tops increases, people could buy laptops instead personal computers. Additionally, increase in number of computer suppliers could have also led to the above situation. Why computers prices experienced a significant fall despite having higher market demand. The reason why prices of computer experienced a significant fall despite having a higher market demand may be due factors attributed to shift in demand and supply curve. Those factors may be categorized broadly categorized into two sections namely; those that causes a shift in demand curve and those that causes a shift supply curve (Mankiw, 2011).Those factors that causes a shift in demand curve include; changes computer prices, changes in consumer’s level of income, demographic characteristics such as population size, consumer’s future anticipation that the prices of computers might change (Boyes and Melvin, 2009). On the other hand, those factors that causes a shift in supply curve include; changes in prices of computers supplied, prices of complimentary commodities and substitutes, prices of inputs/factors of production, future expectations of changes in supply of computers, number of computer suppliers, technological changes (Boyes and Melvin, 2009). The diagram below indicates a rightward shift in demand curve as a result factors that causes shift in demand curve. Some of those factors include: an increased population of computer users, increased in level of income earned by consumers may have caused an increase in demand of computers leading to a right ward shift in demand curve (Lipsey and Harbury, 1994). Additionally, an increase in number of suppliers may have led to a fall in prices of computers. Connectively, availability of computers which could be used as substitute may have led to an increase in demand of computers leading to a light ward shift in demand curve (Lipsey and Harbury, 1994). For example, with the emergent of laptops many people preferred laptops to desk laptops due to their small size, portability and efficiency. Therefore, this means that lap tops emerged as a substitute for personal computers. This further led to an increase in demand for laptop computers despite a decline in computer prices. Additionally, future expectation that prices of computers could increase in the future may have contributed significantly to a rightward shift in demand curve. The effects of all the above factors may be presented diagrammatically as shown below. Shift in Demand Curve Price Supply curve D2 D1 P1 B A P2 Rightward shift D2 D1 Qty Qd1 Qd2 Quantity Demanded Source: (Lipsey and Harbury, 1994) The diagram above indicates a right ward shift in computer demand from point A to point B causing a change in computers demand from D1D1 to D2D2 .On the other hand, computer prices decreased from P1 to P2 while quantity demanded increased from Qd1 to Qd2. This shift could have been caused by factors that cause a shift in demand of computers such as fall in prices of computers, increase in population, increased in consumer’s level of income among other factors. Computer prices A Shift in Supply Curve S1 S2 A P1 P2 B S1 S2 Demand QS1 QS2 Quantity Supplied Source: (Lipsey and Harbury, 1994) Based on the above diagram, it can be scrutinized that supply curve shifted from point A to point B as computer prices decreases from P1 to P2 while the quantity supplied increases from QSI to QS2. This situation was caused by shift factors affecting computers supply. Some of those factors include increase in number of suppliers such of different computer models such as Acer Toshiba, Samsung,HP Compaq, Dell to mention just but a few. Additionally, the cost of factors of production and technological advancement could have been attributed to a shift in computer supply curve as indicated in the above diagram. Conclusion Managerial economics provides managers with efficient tool understand and techniques for making managerial decisions. The interaction of consumers and producers can be easily understood via managerial economics berceuse it integrate the aspects of micro and macro economics when making analysis of factors that causes changes in demand and supply of commodities. Therefore, it can be scrutinized that numerous factors contributed to an increase in demand for computer in a free market. Whereby, a free market involves a market that is free from government intervention. Commodity prices in this market are determined by market forces (demand and supply). A decrease in computer prices led to a decrease in demand because more suppliers are willing to supply computers at higher prices in order to make higher returns. Additionally, computer prices were falling despite higher returns because of some factors affecting demand such as availability of substitutes, increase in number of computer suppliers to mention just but a few. However, this may not always be the case because some shift factors may have an impacted on demand and supply of computers. Additionally, graphs and data have been utilized to analyze the reason why computers prices remained low despite having a higher demand. Some shift factors were found to cause computer prices to fall despite having a higher demand. Some of those factors include; computer price, consumer’s levels of income, availability of substitute computers such as laptops that could have been used instead of personal computers, increase in population, increase in number of computer suppliers as well as changes in consumer’s expectations. This means that if consumers were expecting computer prices to increase in the future, demand could increase. On the other hand, some shift factors affecting supply of computers may have led to a decline in computer prices despite having higher demand of computer. Among the factors include; technological changes, availability of substitutes, decline in cost of manufacturing computers. This means that a decline in cost of production could have led to an increase in computer supply. This could consequently lead to an increase in demand for computers despite having a fall in prices. Reference List Boyes, W. J., and Melvin, M. (2009). Economics. Eagan, MN, South-Western Cengage Learning. Cetnews. (2002.The Personal Computers Turned I BillionON April 2013. Displaysearch. (2008).Tablet Personal computer Market Forecast to Surpass Note Books in 2013Retrieved:on12th April 2013. Read More