Question

6. Today’s world is rapidly advancing in technology. Technological advancements have
improved business practices on one side and also reduced cost of various products on
the other side. Computer. Co also take advantage of this technological advancement
and producing more quantity with lower cost. [15]
a. With low production cost, draw a supply-and-demand diagram to show the impact
on price, quantity, consumer surplus, and producer surplus in the market for
computers.
b. Before computers, most of the students used typewriters for writing papers, which
was then replaced by computers. Please explain and justify whether the typewriters
and computers are complements or substitutes. What will be the impact on price,
quantity, consumer surplus and producer surplus in typewriter industry (Show
graphically). Please also explain how the typewriter producers will react with the
technological advancement in computers?
c. With technological boom, software industry also witness advancement. With the
help of supply and demand graph, show the impact on price, quantity, consumer
surplus and producer surplus for software market. How will the producers in
software industry will react with technological advancement in computers?

Answer 1

a) With the technological advancements, the cost of production decreases ,which in turn increases Production and suppply of computers.

See the graph below indicating pre advancement Equilibrium Quantity, equlibrium price , Consumers surplus ( CS)& producers surplus ( PS)

Initial Market for Computers

Point E indicating pre advancement Equilibrium Point,with Q as Equilibrium Quantity ,B as Equilibrium price.

Area ABE depicts. ---- C.S

Area OBE depicts------ PS

Again I am giving graphafter technological advancements------

Post technological advancements-----

After Technological advancement, the supply curve shifts rightward ( S’) which intersects demand curve at point E'',

New Equilibrium Quantity= Q¹( increases)

New Equilibrium price = B’( falls)

CS=shaded area AB'E'

PS=shaded area B’E’L

Both CS & PS increases after Technological advancement.

b) Typewriter market and impact of computers

Both computers and typewriters are substitute goods. If demand for computers is higher , people will demand less Quantity of typewriters.

Initial Equilibrium of typewriter market

Initial consumers surplus = area ABE

Producers surplus = area BEO

Typewriter market & effect of computers-----

We find that after increasing demand for Computers, people will buy less Quantity of typewriters, due to which the demand curve will shift leftward .

New equlibrium point =E’

Equilibrium Quantity =Q'( falls)

Equilibrium price =$B'( falls)

CS= shaded areaA'B'E'( Decreases)

PS= shaded area B'OE’(decreases)

Ater lower demand and lower price, the producers/ suppliers will reduce producrion of typewriters

C) Technological impact on software industry

computers and software are complementary goods. With the increase in demand for computers ,the demand for Computers software will also increase.

See the graph below----

Initial Equilibrium point =E,which determines Equilibrium Quantity Q and Equilibrium price B

Area ABE is Consumers surplus ,while area BOR is Producers surplus .

After inctease in demand for softwares, yhe demand curve will shift rightward.

New equlibrium point =E'

Equilibrium Quantity =Q'( Increases)

Equilibrium price = B' ( Increases)

Consumers surplus = area YB'E'( incteases)

Producers surplus = area OB'E'( Increases)

The producers will increase production and supply of software after evaluating increased demand and price of computer software.