Falling Price of Laptop Computers, Essay Example

Introduction

The last decade  has witnessed a sharp drop in the cost of personal and laptop computers.  This paper explores the micro-economic factors that have resulted in the sharp decline since the year 2000.  The increased availability of chip technology and the ability to manufacture in South East Asia indicates a continued decline in prices.  Equally, the internet and globalization has increased the need and competition for supply of computers in the developing world.

The illustrated chart, courtesy of the Washington Post, illustrates the CPI for computers and peripheral equipment. (Perry, M.J. 2009).  In essence this means that the cost of computer equipment today is slightly less than 10% of the purchase cost in 1998.  One of the main easons is that of the chips provided by Intel Corporation, the output has been increasing in addition to the quality and performance of these products.

Economics Of Cheaper Computers

In general theory of micro-economics, if the prices for goods increases, all things being equal, then the demand for those goods will decline.  As the cost of production for computers over the last ten years has decreased in terms of material and labour cost, this has seen a steady drop of the prices each year and as such the demand for computers and peripherals has steadily increased. The improvement in global communications and wireless technology has accelerated the path of globalization and this has increased the demand for computer equipment. In addition, we have a number of emerging and rapidly developing economies like Russia, China, India and Brazil that has pushed up demand for computer technology.

The economic decline in the financial markets from 2009 onwards should show a slowdown in the continued demand for personal computers and in theory that should equally stop the rapid decline in prices.  Oddly enough it is the developing countries and emerging markets that are likely to be impacted first as whilst demand in those regions might incrrease the voilume of prodiction is falling.  This as a result of the credit squeeze,  falling  commodity prices and a decline in the value of the US$.  In addition the more mature economies of the world are predicting slower growth patterns.  It is also useful when looking at declining computer prices to observe specific correlations. For example the price of semi-conductors has equally been dropping in price at the average rate of  40-50% per annum. This contrasted to the average drop in computer prices of 15% per annum over the last decade.

Falling Prices

The general concept of falling prices does not prevent consumers from spending money on items like computers and essential periperals.  This is illustrated by the fall in prices of consumer electronics whilst demand has continued to rise over the last decade.  The logic being that when prices go down, then people can afford to buy the goods and so demand increases . There is also the fear factor that people fear the products will go up in price again and as such try to purchase at what they believe is the optimum selling price. Falling prices tend to provide the customer more freedom of choice and as such stimulates market competition. The table above illustrates that the sales of PC’s and Laptops will continue to grow, with Asia being the largest growth area as the demand is the highest in this region.  Growth in the USA will continue but not at the same rate as the emerging countries and developing world.  (ET Forecasts, 2011)

References

ET Forecasts. (2011). Worldwide PC Market. Retrieved 9 29, 2009, from ET Forecasts: http://www.etforecasts.com/products/ES_pcww1203.htm

Perry, M. (2009, 5 13). Computer Prices Have Fallen By 90% Over the Last Ten Years: Is That Evidence of Monopoly Power. Retrieved 9 29, 2009, from Washington Post: http://wallstreetpit.com/4300-computer-prices-have-fallen-by-90-over-the-last-ten-years-is-that-evidence-of-monopoly-power