SRJC_H2_ECON_P2_ANSWER

1    © SRJC 9732/02/JC2PreliminaryExam/11 1 Recent developments, such as improvement in the state of technology, nation-wide wireless internet access and phenomenal growth in emerging economies like China and India, have affected the demand for and supply of netbooks, laptops, desktop computers and similar products. Discuss how the abovementioned markets could be impacted by these developments. [ 2 5 ] Intro  Demand refers to the willingness and ability of consumers to buy a good at various prices, ceteris paribus while supply refers to the willingness and ability of firms to produce a good at various prices, ceteris paribus. The actions of buyers and sellers in the market will determine the market equilibrium price and output.  From figure 1: o If the price is P 1, quantity demanded > quantity supplied  shortage of Q 1Q2  consumers who are willing and able will bid up the prices in order to get the good while producers will respond to the higher prices by  quantity supplied. o If the price is P 2, quantity supplied > quantity demanded  surplus of Q 1Q2  producers will lower prices in order to get rid of excess stocks while consumers will respond to the lower prices by  quantity demanded. o The above processes will continue until the shortage and surplus are eliminated at P0 where quantity demanded is equal to quantity supplied. Hence, equilibrium price is P0 and output is Q0. Body a) With improvements in technology, it makes it possible for wireless internet access to be available to many people, thereby  supply of wireless internet service. Eg:  Recent developments in mobile internet allow people to have access to broadband-on- the-go with the aid of a small device.  From figure 2, such  in supply of wireless internet service from SS 0 to SS 1   price from P 0 to P 1 and  quantity from Q 0 to Q 1. Since wireless internet service is a complement for wireless-enabled mobile devices such as netbooks and laptops   demand for such mobile devices from DD 0 to DD 1 in figure 3  shortage  Upward Figure 1 price Quantity 0 SS0 DD0 P2 P0 P1 Q0 Q1 Q2 Figure 2 price Quantity of wireless internet service 0 SS0 DD0 P0 P1 Q0 Q1 SS1 Figure 3 price Quantity of netbooks and laptops 0 SS0 DD0 P0 P1 Q0 Q1 DD1

2    © SRJC 9732/02/JC2PreliminaryExam/11 pressure on price. Eventually, a new market equilibrium is reached where quantity demanded will once again be equal to the quantity supplied   equilibrium price from P0 to P1 and  equilibrium quantity from Q0 to Q1. Briefly explain IED  Income elasticity of demand (IED) measures the degree of responsiveness of DD for a good due to a change in consumers’ income, ceteris paribus.  A good that has positive income elasticity of demand is one in which the demand for the good rises when the income rises and falls when income falls, ceteris paribus. Such