Answer to Question #324232 in Microeconomics for Ayesha

Question

Q 5: Suppose technological advances have reduced the cost of Hard drive. Explain its effect on the supply for computers? Also illustrate the effect of change in supply on the equilibrium price and quantity of computer? 

Answer 1

Technological advancements that lower the cost of creating computer chips represent a drop in the price of a computer's input. As a result, the supply of computers has shifted to the right, as seen below. The equilibrium quantity increases while the equilibrium price decreases.

The lower equilibrium price of computer software is due to the fact that it is a complement to computers.

The need for software rises as the number of computers rises. The effect, as seen in the diagram below, is an increase in the equilibrium price and amount of software.