Question

Your company has invented the latest technological computer. It has functions so advanced that no other computer can compare. Assume the computer will be in production for two years before it is retired for a new version. Consider demand and supply. Identify three stages the computer will go through. Discuss how its price will be reflected in each stage. Use details to support your answer.

A) Introduction, Growth, Maturity - Price increases initially, stabilizes, and then drops.
B) Growth, Introduction, Maturity - Price drops initially, stabilizes, and then increases.
C) Maturity, Introduction, Growth - Price stabilizes initially, drops, and then increases.
D) Introduction, Maturity, Growth - Price drops initially, increases, and then stabilizes.

Answer 1

The stages a new advanced computer will go through are Introduction, Growth, and Maturity, with prices initially high, then stabilizing, and finally dropping. Technological improvements typically increase the supply curve and can lower prices. An increased supply generally explains why more computers are sold at lower prices in the market.

Step-by-step explanation:

The appropriate answer to the question is option A) Introduction, Growth, Maturity - Price increases initially, stabilizes, and then drops. At the introduction stage, the computer will likely have a high price due to initial development costs, exclusivity, and high demand with low supply. As the computer enters the growth stage, production scales up, the price tends to stabilize because economies of scale are reached, making production more cost-efficient. Finally, during the maturity phase, market saturation and the advent of new technology lead to a price drop as the computer is phased out for newer models.

When considering the computer market, a technological improvement that reduces production costs typically leads to an increase in the supply curve, which may cause prices to lower for consumers while businesses experience temporary profits. Over time, the entry of new firms into the market balances the supply, and prices might decrease further or stabilize as profits normalize.

Looking at the larger market, more computers selling at much lower prices could be explained by a technological advancement that allows for cheaper production or an increase in the number of competitors, which corresponds to an increase in supply. This would shift the supply curve to the right, leading to lower prices at any given demand level.