Law of demand


A free market economy is completely based on supply and demand with little or no government can control free market. A free market economy is completely idealized form of market economy in which buyers and sellers are allowed to do there transaction freely without any involvementof government. It can be based on price without state intervention in the form of taxes, subsidies or regulation.

Personal computer in free market economy

In the 1960s, to speak of computers was to speak of IBM, the dominant maker of large mainframe computers used by business and government agencies. Then between 1976, when Apple Computer introduced its first desktop computer, and 1981, when IBM produced its first personal computers (PCs), the old world was turned upside down. In 1984, just 8.2% of U.S. households owned a personal computer. By 2007, Google estimates that 78% did. The tools of demand and supply tell the story from an economic perspective.

The more personal computer are manufacture by apple or this both companies were very profitable.This profitability attract IBM another form of personal computer industry. "Personal Computer Shipments, Market Percentage Shares by Vendors, World and United States", the top five personal computer manufacturers produced only 48% of the personal computers sold in the world,and the largest manufacturer, Dell, sold only about 19% of the total in the recent years. This is a far cry from the more than 90% of the mainframe computer market that IBM once held. The market has become far more competitive.

  • The table shows personal computer shipments, market shares by vendors in world.
  • Supply and demand of computer product

  • Supply and demand is one of the mostfundamental concepts of economics and itis the backbone of a marketeconomy.Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship.Supply represents how much the market can offer. The quantity supplied refers to the amount of a certain good producers are willing to supply when receiving a certain price. The correlation between price and how much of a good or service is suppliedto the market is known as the supply relationship. Price, therefore, is a reflection of supply and demand.

The law of demand states that, if all other factors remain equal, the higher the price of a good, the less people will demandthat good. In other words, the higher the price, the lower the quantity demanded. The amount of a good that buyers purchase at a higher price is less because as the price of a good goes up. As a result,people will avoid buying a product that will force them to go for the substitute products. The chart below shows that the curve is a downward slope.

A, B and C are points on the demand curve. Each point on the curve reflects a direct correlation between quantity demanded (Q) and price (P). So, at point A, the quantity demanded will be Q1 and the price will be P1, and so on. The demand relationship curve states that there's a negative relationship between price and quantity demanded. The higher the price of a good the lower the quantity demanded ,and the lower the price, the morethe good will.

Factors of Demand in computer market

  • The price of main product
  • The price of other product
  • Substitutes
  • complements
  • Income
  • Normal
  • Inferior
  • Population
  • Preference
  • Future price expectation

Income Effect

  • The country development can be knowned from is economy development and individual capacity development.
  • If there is stability in economy of country there will be no fluctuation. If there is downfall in economy there will be fluctuation.
  • If it is in case of open market, when price of computer starts decreasing then it is to be assumed that there are lot of competitors in the market who are supplying the same kind of product with use of different modes of promotion to attract the attention of the market and thus the demand for a product will be low. Nowadays information to the users on buying a computer is plenty so people choose right source to get complete information on their requirement.
  • As the price of a goods falls,so that consumer feel richer and buy more goods.
  • The demand will shift to right-D2

Future price expectation

  • What is the effect of demand in the present when the computer market thinking about future changes in price ,income or availability.
  • For example if a student learn the price of a text books for several courses they plan to take in next semester will double soon.Their likely response is to buy now,which cause increase in demand curve for the text book.
  • Consider computer market if the price of computer falls.the people expectation of buying computer will be there will be increase in demand for computer.
  • Increase in demand curve and the demand curve shift to right D1 to D2.


  • Population is a factor which will create change in demand
  • In simple we can say if there is more population there will be more demand for the product.
  • Example: take the countries China and India are the country with the more population. because of more population so there will be more demand for the computer. so demand of computers are more for this countries.
  • Market demands=sum of individual demand
  • For example: the price of dell computer is 300 pounds, kemp wants to buy 2 dell computer, Brenda wants to buy 3dell computer, and David wants to buy 1 dell computer, then, of course, the market demand is 6 dell computer. If azar becomes a buyer and wishes to buy 4 dell computer, the market demand rises to 10 dell computer. So if there more buyer population it will create change in demand and increase in demand.
  • demand curve shifted to right when more population-D1 to D2.

Consumer preferences:

  • If the preference for a particular good increases, the demand curve for that good shifts to the right.
  • In simple words we can say if the customers like the product much they will buy it more so it will increase a demand.
  • For example: Fad provide excellent examples of changing consumer preferences. Each Christmas season some new toy catches the fancy of kids, and parents scramble to purchase the product before it is sold out. A few years ago, "Tickle Me Elmo" dolls were the rage. In the year 2000 the toy of choice was a scooter. For a given price of a scooter, the demand curve shifts to the right as more consumers decide that they wish to purchase that product for their children. Of course, demand curves can shift leftward just as quickly. When fads end suppliers often find themselves with a glut of merchandise that they discount heavily to sell.
  • In computer market ,if the buyers preference on a particular computer the demand for that computer will increase in the the demand curve shift to right.

Prices of related goods

  • If prices of related goods change, the demand curve for the original good can change as well. Related goods can either be substitutes or complements.
  • Substitutesare goods that can be consumed in place of one another. If the price of a substitute increases, the demand curve for the original good shifts to the right. For example, if the price of dell rises, the demand curve for sony to the right. Conversely, if the price of a substitute decreases, the demand curve for the original good shifts to the left. Given that software and hardware are substitutes, if the price of computer falls, the demand curve for chicken shifts to the left.
  • Complementsare goods that are normally consumed together. printer and web camera are complements. If the price of a complement increases, the demand curve for the original good shifts to the left. For example, if dell raises the price of its mini computer, the demand for dell computer shifts to the left because fewer people walk in the door to buy the mini computer. In contrast, If the price of a complement decreases, the demand curve for the original good shifts to the right. If, for example, the price of computers falls, then the demand curve for computer software shifts to the right.

Factors of supply in computer market

  • The price of the computer product
  • The price of the other product
  • The price of feauture of production
  • Technology
  • Number of producers
  • Future price expectation


  • Technology improving day today life and it reduce the work of the human that it makes a supplier to produce more product.
  • Technology turns input to the computer is another determinants of supply.Invention of computer it reduses the work of labour for todays world.By reducing the firm cost,the advanced technology increases a supply of computer.
  • Advance technology increases so that supply of computer also curve shift to right from S1 to S2.

The Producers Expectation

  • It doesn't just matter what is currently going on - one's expectations can also affect how much of a product one is willing and able to sell. For example, if your firm produces Dell computer and you hear that sony will soon introduce a new computer that has more memory and longer battery life, you (and other producers) may decide to hurry up and sell your computer to stores before the new computer comes out. When people decide to increase production/sales today, they are increasing the current supply for computer because of what they EXPECT to happen in the future.
  • Increase in production will make increase in supply that supply curve shift right from S1 to S2.
  • Number of producers in the market

  • As more or fewer producers enter the market this has a direct effect on the amount of a product that producers (in general) are willing and able to sell. More competition usually means a reduction in supply, while less competition gives the producer a opportunity to have a bigger market share with a larger supply.
  • The supply increases and the supply curve shift to right from s1 to s2
  • Change in input costs

    An increase in input costs shifts the supply curve to the left. A supplier combines raw materials, capital, and labor to produce the output. If a furniture maker has to pay more for lumber, then her profits decline, all else equal. The less attractive profit opportunities force the producer to cut output. Alternatively, car manufacturer may have to pay higher labor costs. The higher labor input costs reduces profits, all else equal. For a given price of a car, the manufacturer may trim output, shifting the supply curve to the left. Conversely, if input costs decline, firms respond by increasing output. The furniture manufacturer may increase production if lumber costs fall. Additionally, chicken farmers may boost chicken output if feed costs decline. The reduction in feed costs shifts the supply curve for chicken to the right.

    Change in size of the industry

    If the size of an industry grows, the supply curve shifts to the right. In short, as more firms enter a given industry, output increases even as the price remains steady. The fast-computer industry, for example, exploded in the latter half of the twentieth century as more and more fast computer chains entered the market. Additionally, on-line stock trading has increased as more firms have begun delivering that service. Conversely, the supply curve shifts to the left as the size of an industry shrinks. For example, the supply of manual typewriters declined dramatically in the 1990s as the number of producers dwindled.

    Demand and supply together

    • Demand and supply curve intersect with eachother.the intersection point is called markets equilibrium point.the price at this intersection is called price equilibrium,the quantity at this intersection is called quantity equilibrium.
    • The equilibrium price is also called as market clearing price at this stage all are satisfied in the market.buyers have bought things all they want,seller have sold all there goods.
    • Putting demand and supply together, we can find an equilibrium where the supply and demand curve cross. The equilibrium consists of an equilibrium price P* and an equilibrium quantity Q*. The equilibrium must satisfy the market-clearing condition, which is Qd = Qs.
  • If price is below P*, at PL, then we have Qd > Qs. This is called "excess demand" or "shortage." The quantity that actually occurs will be Qs. For this quantity, buyers are willing to pay much more than PL, so they'll start bidding against each and raising the price.
  • If price is below P*, at PH, then we have Qs > Qd. This is called "excess supply" or "surplus." The suppliers will start competing against each other for customers by lowering the price.
  • Short-side rule: When there is a disequilibrium price, the actually quantity that gets sold is given by Q = min{Qs,Qd}. This is implied by the requirement of voluntarism.
  • In recent years, the price of personal computers has continued to fall even in the face of increasing demand

    • Technological change, which has caused the supply curve for computing power to shift to the right, is the main reason for the rapid increase in equilibrium quantity and decrease in equilibrium price of personal computers
    • Technological changes has been breathtakingly swift in the computer industryBecause personal computer have changed so dramatically in performance and in the range of the function they perform.the price per unit of quality adjusted personal computers fells by about every 24 months of year.
    • Technological factor increase more supply of computer.
    • Consider another indicator of the phenomenal change in computer.the Bureau of Labor S tatics estimate central processing speed rose 1,263%,system memory increased 1500%,hard drive capacity soared by 3700%,and monitor size went up 13%.A Computer today is not the same good as a computer even five years ago.To make them comparable,we must adjust for these changes in quality.

    The supply curve for quality-adjusted personal computers has shifted markedly to the right, reducing the equilibrium price fromP1toP2and increasing the equilibrium quantity fromQ1toQ2

    • Figure , show there is change occurred in the computer market. The horizontal axis shows the quantity of quality-adjusted personal computers. Thus, the quantity axis can be thought of as a unit of computing power. Similarly, the price axis shows the price per unit of computing power. The rapid increase in the number of firms, together with dramatic technological improvements, led to an increase in supply, shifting the supply curve in Figure, "The Personal Computer Market" to the right fromS1toS2.
    • Demand also shifted to the right fromD1toD2, as incomes rose and new uses for computers. Because we observe a fall in equilibrium price and an increase in equilibrium quantity, we conclude that the rightward shift in supply has outweighed the rightward shift in demand. The power of market forces has profoundly affected the way we live and work.
    • If the computer price fall the demand of computer increases rapidly.due to increase in demand supply also there is right shift for both supply and demand.
    • Technological factor-main factor to change supply curve in computer market
    • Income factor-main facto to change demand curve in computer market.


    From the demand and supply of the computer market we have seent he quantity of demand increase but the price falls down its because of

    • Rise in income
    • Increase in population
    • Future price expectation
    • Consumer preference

    This are the factor changes the demand and shift the demand recent years demand is booming in the computer market.

    In recent year there are more supplier in the computer market.The price falls in the supply curve also its because supply is more then required demand.the price falls and the supply increases rapidly in the computer market.the factor changes supply are

    • The main reason is more competitors
    • Another main reason new technology
    • Input cost
    • Producer expectation.

    If there are more supply the price of the computer falls down and supply increases.In recent year there are more supplier in the computer market.

    In recent year the computer market increases in demand and supply rapidly and makes price fall.the main cause of these is new technology,more competitors in the market and increase in come and this is the present situation of computer market

    References and Bibliography

    • Principles of economics by N.Gregory Mankiw-fifth edition
    • Macro Economics by Irvin B.Tucker-6th edition 2010.

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