Question

Select a good that you previously used, but has been replaced by another good. (For example, Apple iPods replacing Sony Walkmans.) Analyze the transition from one good to another, and the effects on prices. (For example, what did the rise of the iPod do to the price of Walkmans.)

Answer 1

A.There are many such examples.I would consider the case of CD/DVD and Pen drives.Initially in my childhood days,floppy disks were in usage.Then Compact discs(CD),DVDs,rewrittable CDs and DVDs came.After that the removable disks(pen drives) and hard drives(external drives) came into usage.

So we can say that the technology has been rapidly evolving.The lifecycle of goods in this sector are becoming shorter these days.

Stage 1: When a new good (Ex:CD/DVD) is invented,initially the price would be high (but it should either be at lower price or aleast be more beneficial than previous good;only then it comes into existence generally).Another reason for the high price would be that the companies try to encash the first mover advantage.

Stage 2 :In this stage,as the demand for the good(Ex:CD/DVD) increases,many companies start to produde the same good,so the price comes down due to various factors like competition,learning curve of the companies,mass production etc.The demand reaches to the peak stage in some time.

Stage 3:Then the demand stabilizes for some time.This has continued till a new alternative good was invented and released in the market (Ex: Pen Drives)(depending on the factors like usage,commercial viability etc.,)

Stage 4 :As the new good ((Ex: Pen Drives) comes into the market,the consumers start using it in place of the previous good.So the demand of the good started reducing and it nearly died out in may be around 2-3 years.Now we have very limited usage of CD/DVD i.e., we use them only when we need to store less amount of data and when we need to send a copy of it to some one simply put not for personal use.