Supply/Demand Question (Easy)

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tellyw Posted: Thu, Jan 29 2009 1:27 PM

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Hi,

     I may just not be thinking right today.  Anyways, if the demand for a product increases, the price increases.  When I look at hard drives, for example, it seems to me as though the demand is high, but, the prices get lower (per byte, for instance).  Is that because the number of  competitors is larger so the prices are not "lower" but competitive?

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Stranger replied on Thu, Jan 29 2009 1:59 PM

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It's because the supply keeps getting bigger and bigger.

When a new model of hard drive comes out, at first there are only a few of the hard drives available, say the first 10,000 coming out of the fab. That makes for only a supply of 10,000 hard drives. Then another 10,000 comes out of the fab, and the supply goes up to 20,000. Then another 10,000 raises the supply to 30,000. Because the production of hard drives is much faster than the consumption of hard drives (demand is stable), the price falls very rapidly.

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10Brandonr replied on Fri, Jan 30 2009 11:43 PM

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MACROECON LESSON 1

Price only increases when demand increases if all other variables remain constant. Also the reason price falls is because, due to technology, the supply curve is constantly shifting to the right, while the demand curve, relatively, does not shift, but rather quantity demanded increases due to the lower costs, which is only a movement along the demand curve, rather than a shift. The end product is an lower equilibrium cost and higher equilibrium quantity. 

Read the first chapter of any macro-economics book, then you'll understand. lol.