Question

You are the manager of a midsized company that assembles personal computers. You purchase most components – such as memory and hard drives – in a competitive market. Based on your marketing research, consumers earning over $80,000 purchase 1.5 more memory than consumers with lower incomes. Today, you read in the Wall Street Journal that, that there has been a rise in global demand for computer memory.

Given the above discussion, what would you expect to happen to the price of computer memory in the short-term?

Further in the newspaper, you read that global economies are expected to grow more rapidly in 2018 and that personal incomes should increase by 3%. What impact would the rise in personal incomes have on the demand for your product?

Answer 1

Given the above discussion, it is conclusive that Report on Wall street Journal says that demand for computer memory has been increased. Computer memory is an integral part of the computer. Since, it can be consider as the raw material for computer. Lets analyze the computer memory market: Since global demand of computer memory has been increased. It is giving you an idea that now demand for rich given price now there is more demand for the computer memories. Therefore, your shift in demand curve would lead to the rise in the prices of memories. Assuming all the standard conditions of inputs and output in production function, we can say that any increase in input price would lead companies to produce less since their cost is increasing. Therefore, in the short run company would cut its output level.

Further, news about increase in income level of individuals will expand the market size of personal computer. As now, number of consumers is more in the market and size of rich consumers would increase. They are more likely to buy than other low-income consumer is. Therefore, this would lead to the shift in the demand curve of computers. Hence, there would be increase in the price level of personal computer. So, obviously company will be able to supply more in the market hence it would produce more.