Demand, resource and free market economy

Market is referred to as a meeting place of buyers and retailers for which a good/service is offered on the market by providers and purchased by consumer (Blake, 1993). Business monitored by the regulations of supply and demand, not restrained by control disturbance, legislation or subsidy is most beneficial as known as free market. A free of charge market economy is something in which the syndication for resources is determined only by their supply and the demand for these people. That is mainly a theoretical thought as every country, even capitalist ones, places some restrictions on the ownership and exchange of goods. The marketplace equilibrium occurs at the price where consumer's determination to demand is add up to firm's willingness to provide (Begg and Ward, 2007) In other words the relationship between the demand and offer establishes the equilibrium position of a particular good or something on the market place where no economic pushes are being generated to change the problem. For a particular good on the market this position is said to be existed when there is absolutely no surplus demand and unnecessary supply. In other words demand should be add up to supply.


Computers were seen as technically superior goods which were sold first to its home market, then to other technically developed countries. Moment in time, it has been imported to the growing countries and which eventually produced by their citizens. For international trade, the long-term style would be that the deals among countries are being usually influenced by product technology (technology) and succeeding diffusion. The diffusion for computer product is so swift and influential that this has become almost impossible to complete a task at work or colleges without the assistance of some type of computer both in the develop and producing countries.

Supply and demand, in old economics, are factors that are thought to ascertain price, by showing a relationship between your amount of confirmed article of trade manufacturers who foresee to sell at a certain price (quite simply source), and the quantity of that article of trade that consumers are prepared to buy (quite simply demand). To supply means producing differing amounts of a good/service that companies to be sold at different prices; generally, higher prices may lead to a greater source. Demand identifies the amount of a good that is requested by consumers at any given price. According to the law of demand, demand reduces as the purchase price rises. In a completely competitive overall economy, the provision of the upward-sloping resource curve and the downward-sloping demand curve produces a resource and demand program that, so that as both curves meet at a spot, the equilibrium price of an item could be attained. The info on supply and demand is sourced from Alfred Marshall№s 20th century ideas, which acknowledges the role of consumers in price determination, alternatively than taking the old financial theory which centers completely on the price for the maker as a determinant. Marshall's work discloses mutually the old supply theory with more recent developments directed at the utility of the commodity to the consumer. Recent theories, such as indifference-curve examination and revealed choice, give more credence to the supply and demand ideas formed by freelance writers of marginal utility. The idea of elasticity is important as well: it shows how certain goods will carry a considerable upsurge in price when there is no evenhanded swap available, while other easily throw-away merchandise cannot accomplish that without shedding big business to competitors.

The romance that leave among consumers and suppliers of your good in a market established fact as demand and supply model in the field of Economics. In a free of charge market, price and volume sold in market of a particular commodity such as computer. Lately, the supply and affordability of computer act as a significant part in popular of it and to fulfill the required demand suppliers/ companies supply increasingly more computer in market. Klein (1983)


There are lots of factors which can impact the demand and supply of computers and because of this the price is without individual intervention driven from the demand-supply curve in a demand-supply model.

Some parameters that affects demand for computer systems are the increasing volume of population, choices, income etc. All these factors impact the demand of personal computers positively by the right shift in demand curve that raises price and level of computers which may yield a shortage of computer systems in market. For example, an increase in demand as a result of the result of 1 of the determinant of demand say, an increase in the population size of computer users will alter the demand curve rightward. The increase in society size is as a result of pcs being used by most people in the less developed and the developing countries which some years back again computers were employed by the developed inhabitants. The result of an increase in the size of the population on price and demand number for computer is seen in the shape below.

An increase in demand as a result of people increase will move the demand curve rightward. That's, the initial demand curve D and supply curve S intersect to produce equilibrium E with price P and volume Q. a rise in population impact demand to move the demand curve rightward to Do, taking the new equilibrium to Eo, price rises to Po and number rises to Qo. The net effect is that there surely is a scarcity of demand symbolized by Z in the figure.

In addition to all that has been mentioned the way to obtain computers inspired by the amount of suppliers, cost implications of the different factors of development, technology etc will be important. These three factors have an optimistic impact on way to obtain computers in computer current market so we see a specific right switch in resource curve which reduces the price and increases the quantity of computer systems which may deliver the surplus of personal computers.

An increase in the amount of companies for producing computer systems will cause a rise in supply of computers in the market place and therefore the price. Since the suppliers is now able to enjoy more earnings for producing the product in question, they will produce more of computer systems leading to a rightward shift of the supply curve for computers. Assuming that the original demand and offer curves for personal computers are D and S which intersect to create equilibrium at E with price of P and quantity Q. the resultant effect of incentive to make more profit by producers motives these to increase supply which shifts the resource curve to So, taking the new equilibrium to Eo. The price tag on computers falls to Po and amount boosts to Qo.

Source: www. investopedia. com

Finally, we get the entire representation of the topical computer market if we merge both rightward transfer of demand and offer curve of computer in software industry jointly in demand-supply model. In cases like this, the quantity raises but the price of the computer might show up or rise. For your certain transfer of computer demand and certain switch of computer supply the price will not be changed but a little greater switch in source curve than the certain transfer will reduce the computer price.


Another angle to the issue is to look at it from what's called the income effect and substitution aftereffect of a change in price. Demand of any commodity, say computer systems, is the number of the product that consumers will have the ability to acquire at a particular price on the stated period. Demand is influenced many factors like people, taste, income, the quality of the goods or services on offer, and the option of rivals' goods or services and so on. These factors influencing demand can be group into two, the substitution and income effects.

The substitution impact emphasizes the change in the use (demand) of an commodity caused by a big change (in the opposite way) in the intake of another (related) commodity. For example, a decrease in the price of computers (the product in question) would make substitutes relatively expensive and the consumer would demand more of computers. In essence the quantity demanded for personal computers would increase.

The income influence on the other hands targets the change in real income caused by a cost change. An increase in the price of computers for case would lead to a land in the true income of the buyer. The consumer would purchase less of each good including computer.

Therefore the income and substitution results functions to enforce a negative relationship between price and number demanded in a free market. The shape below explains it.

The substitution effect is defined by sliding the budget series around a set indifference curve; the income effect is defined with a parallel change of the budget series. The original budget line is at abs and a fall in the price of computer calls for it to aj. The original equilibrium reaches E with Q of demand computer, and the ultimate equilibrium reaches E1 with Q1 of computer demanded. To eliminate the income the income effect, we switch the aj to a parallel lines nearer the foundation until it just details the indifference curve that moves E. the intermediate point E0 divides the quantity change into a substitution result Qo-Q and an income impact Q1-Q0. It may also be obtained by sliding the initial budget line ab surrounding the indifference curve until its slope reflects the new relative prices.


Supply is the number of goods that companies are inclined and able to provide at a price or price over a given time frame. With resource, two factors are vital; the willingness to supply and ability to provide.

With the determination to supply, a growth in price of an commodity provides an increase in profitability given cost. Hence an increase in price has an incentive for companies to produce and offer more to the marketplace.


Another issue is the capability to supply. An increase in resource (production) is usually combined with an increase in cost. Cost of producing additional units of commodity is usually high particularly if production exceeds the reserve capacity: extra labour hours would be paid overtime, therefore complex technology may be required to acquire additional recycleables, etc. a rise in price provides a motivation to produce more since the extra price could cover for these additional costs. The supply curve is therefore positively slope, indicating that more comes at an increased price other activities being similar.

The market for pcs represents that of a technology whose prices were considerably above their cost of production. The expense of producing a computer was relatively higher 20-30 years ago. However its price was very high making them very profitable.

As the technology to produce them (pcs) diffused, more producers (manufacturers) in an attempt to make profits entered in to the market and offer more computer systems. Existing suppliers of personal computers can also increase their output for their willingness to make more revenue. The raises in supply may cause the source curve of computers to transfer to the right. The suppliers of pcs are very hypersensitive to price. They reply quickly to prices because of the presence of competition (other manufacturers).

On the demand aspect, the utilization of computers has become more necessarily; people think it is vital to have pcs in their homes and work places. Students, even those in the low grades, require computer systems to do their work. Therefore users or customers of personal computers are rather relatively less delicate to the price tag on computers.

The net effect of these rightward shifts popular and supply are shown in the graph below

The original demand curve DD intersects with supply curve SS at price P1 and variety Q1. Computer users being relatively less hypersensitive to price of computer systems will increase number demanded for computer producing a shift in demand from DD to DD1. Alternatively, producers being motivated to make revenue increase supply of computers into the market place shifting the supply curve from SS to SS1. The new appointment point of DD1 and SS1 produce P2 and Q2 which shows a fall in cost from P1 to P2 and an increase in volume demanded from Q1 to Q2


Demand and supply will be the key determinants in the price tag on computers. The ability to manage them will help control the price tag on computers. The above document has highlighted factors that may control this tapping on economical theories and principles from popular writers and commentators.


Landsburg, S (1999), Price theory and applications, 4th edn. Cincinatti: South "American College Publications

Perloff J (2001), Microeconomics 2nd edn. New York: Addison-Wesley

Pindyck, R & D. Rubinfeld (2001), Microeconomics 5th release, Upper Saddle river, NJ: Prentice Hall

Begg, D. and Ward, A. ( 2007), Economics for Business, 2nd model, McGraw Hill Publications

Hubert, H. (2004), Business and Economics

Klein, L. (1983), The Economics of Source and Demand

Cuthbertson, K. (1985) The Supply and Demand for Money.


http://www. investopedia. com/university/economics/economics3. asp, Accessed 02 Dec 2010.

http://www. netmba. com/econ/micro/supply-demand/, Accessed 5th Dec 2010

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