Question

Consider the supply of computers. For each of the following, state the effect on supply:

A change in technology that lowers production costs

An increase in the price of semiconductors

A decrease in the price of computers

An increase in the wages of computer assembly workers

An increase in consumer incomes

Answer 1

(a)

A change in technology that lowers production costs:

In this situation, supply of computers will increase. A lower production cost means that the firm can produce more goods for the same price. When the firm has more goods they can increase their profits.

(b)

An increase in the price of semiconductors:

In this situation, supply of computers will decrease. Semiconductors are an input in the production process of computers, and will raise production costs. With a higher production cost firms will produce fewer computers.

(c)

A decrease in the price of computers:

Here, a decrease in the price of computers will decrease the quantity of computers supplied along the same supply curve. This is because price decrease means the firm will take in less revenue for the same level supply and thus less profit. So, decrease price act as a disincentive for supplier.

(d)

An increase in the wages of computer assembly workers:

Here, an increase in wages of computer assembly worker will decrease the supply of computers. Since wages are part of production costs, so increase in input cost will discourage firms to produce fewer computers. As a result, firms will supply fewer computers to maintain the profit margin.

(e)

An increase in consumer incomes:

This situation will not impact on the supply of computers. Consumer income is a factor of the demand for computers. When consumer income raises the demand for computers will rise since computers are normal good.