cross price elasticity
... well for most of the computer uses like word, spread-sheets etc. Analysis of the case: The case depicts the fall in price of computers, subsequently leading to an increase in demand. This is in line with the law of demand, which states “there is an inverse relationship between the price of a good and the quantity demanded, assuming all the other factors that might influence the demand are held constant (this assumption is abbreviated as ceteris paribus)”. In other words, a rational consumer is willing to pay less for a commodity then paying more for the same thing. In this graph, we see that as the price is decreasing, the quantity demanded is showing an increase, ceteris paribus. Two main criteria are observed as reason for the increase in demand: 1. Substitution effect: It is a well-known fact, that earlier business houses and people used to do most of their work manually, which consumed a lot of time. This was done primarily with the help of typewriters. Now with the decrease in the price of computers, many potential buyers felt the need to substitute typewriters with computers, which in turn increased the efficiency and the productivity. I.e. typewriters were substituted with computers. 2. Income effect: As the price of the computers declined, I found myself buying more with the same income. I, as a buyer would buy a computer, with the same income level. Some of the non-price determinants of the decrease in demand are: 1. Size of the market: The population may have increased as a result of which more number of people is buying the computers. 2. Competition: Rival companies have decreased their price substantially and hence to stay in the market, the companies have to offer a lower price to attract and retain buyers. This can be validated by the fact provided in the case that Micro Center, a Columbus, Ohio-based chain begin selling computers at $399 under the Power Spec Label. Following that another competitor, Precision Tec LLC, introduced its Gazelle machine for the same price over the Internet. It can be assumed that this company used internet as its advertising channel as given in the case, internet established itself in just 4 years as compared to other forms of communication. 3. There is also a subjective element called tastes or preference, which is also a part of the non-price determinant. The consumers know feel the need to work faster using the latest computer technology and other programs like word, spread...