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Essay: Computer system Price and Importance Business Essay

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  • Published: 21 June 2012*
  • Last Modified: 15 October 2024
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Computer system Price and Importance Business Essay

1. Introduction:

In today’s life the computer system has become one of the important products that will be used by all the persons. The computer systems are became one of the important products that will play a major role in all business areas and personal life.

In early days the price of personal computer is very high. There are different types of companies are there which will produce different types of computer systems in different technologies.

There are different types of companies that will produce computer systems like apple, Sony, hp…Etc. the basic idea behind every company is profit maximization. The main factors that will affect the profitability of the company is price of product, demand and supply of the product.

There are different internal and external factors that will influence the price, demand and supply of the computer system. In next pages in the assignment we will go through different factors that will influence the price of computer systems in the open market environment.

These papers will explain what are the factors that will influence the demand, supply and price of a computer systems in the open market.

2. Demand:

According to law of demand the demand for any product or service will increases if the price of the product or service decreases and the demand for that product or service will decreases if the price of that product or service increases under the assumption that all the other things are same.

The following diagram will explains the demand curve for a computer when price of the computer changes by assuming that all the other factors which will affect the demand for the computer is same without change.

The change in demand for any product or service will be influenced by not only the price of that product , there may be other factors that will affect the demand for that product or service .when any factor which will influence the plans of the buyer other than the price of the product or service , there is change in demand.

The following graph explains the change in demand curve by the factors other than price of a computer. When demand increases, the demand curve will shift towards rightward and quantity demanded at each price is greater.

2.1 effect of price change on demand

The quantity demanded will be reduced when the price of the product reduced because of following reasons

  1. Substitution effect
  2. Income effect

Substitution effect:

Substitute products are those which can be used in the place of other products. For every product there will be some other substitute products.

Example: cd , floppy drives, DVDs …etc. these are products which are which are substitute for each other.

Example: If a consumer wants to go for red bull energy drink, if red bull is not there he will go for any other energy drinks which are available in the markets. All the energy drinks are substitute products for each other. If the price of one energy drink increases, then the demand for other energy drinks may change because the consumer can go for other energy drinks.

When the price of any product rises, other things remaining the same, its relative price and opportunity cost will rises. If the price of any product rises the user normally will go for the substitutes and demand for the substitutes will rise.

Example: Sony company laptops can be used in place of hp company laptops. These two are substitute products for each other. If the price Sony laptop has increased then the can go for the hp company laptops.

Income effect:

When the price of any product raises, other things remaining the same, the price rises are relative to income. If the income of any user remains the same and the price of the product rises then the user can not afford to buy the product they previously bought. Then the user can decrease the quantity demanded of some goods. When the price of any goods increases and the income of the consumer remain same the willingness and ability to pay for the product will decreases. The rule of demand for the goods or services will increase more of most goods. The rule of increase of demand for the goods or services along with income will not apply for all the goods. For normal goods the demand for the goods will increases when the income of the consumer increases. There are some inferior goods which will effect

Example: if the income of people increases then usually the demand for air travel will be high because the user may used go by flight in case of long distance travel.

3. Factors affecting the demand for personal computer other than price:

Price of related goods:

For every products there will be some complementary products are those which are typically consumed together.

The demand for the computer will be influenced by the complementary products of the computer.

Example: printers and scanners are complementary products to the computer. We can say that when two goods are complements there will be inverse relationship between the price for one product and demand of other product.

Example: computer co. Diff

Expectations of consumers:

The consumer expectations will plays a role in change in demand for a product or service. The consumer expectations about future can also affect how much he is willing and able to buy.

Example: if you hear that the Sony will introduce a new laptop that has better configuration, more facilities, more including devices and with long battery life. The user may decide to wait to buy the laptop until the new one comes out.

When user decides to wait, there may be decrease in the demand for the current laptop because of user expects to happen in the future.

Example:

If you expect the price of onion to go rise tomorrow, you may purchase more onions today. So the demand for the onions will increase today.

Because of this type of expectations in India the demand and price of the products were increased so high.

Example: hurricane Katrina 2005

    3. expected future income and credit:

    4. Preferences of consumers:

The demand for a product may depend on the preferences of the consumer. Some consumers may prefer some of the products and some companies only. The preference of a consumer is a less tangible item that can have a big effect on demand for the product.

Example: advertisement given by celebrity

Example: if health study comes

Example: seasonal products

    5. Population:

The size of population and age structure of population will have influence on the demand for the product.

More population: demand for all goods and service

Less population: less demand

Change in quantity demanded versus a change in demand:

Movement along demand curve

Shift of demand curve

4. SUPPLY:

According to law of supply if the price of any product increases the quantity supplied will be greater, the lower the price of the goods , the smaller the quantity supplied.

4.1 affect of price change on supply:

5. Factors affecting the supply of computers:

Not only is the price of the product but also there some other products that will influence the supply of the product.

Prices of inputs:

For the production of any products there are some inputs for production of that product. The prices of inputs for the production of a product will influence the supply of the product. If the price of a factor of production rises, the lowest price that a producer is willing to accept for that good rises, so supply decreases.

Example: the increase in the price of jet fuel will have impact on the supply of air travel. During the year 2008, the price of the jet fuel has increased and because of that the supply of air travel decreased.

Prices of related goods:

The price of the related goods should influence the supply of any product. If the price of any product increases then normally the production company will go for the production of the substitute products which are of high price. if the price of one product increases then normally the supply of the product rises and the supply of the complementary products also will increases.

Example: if the price of scanners rises, firms switch production from printers to scanners then automatically the supply of the printers will decreases

If the price of printers increases then the supply of ink cartridge will automatically increases because the printers and cartridge are complementary products, both that must be produced together.

Expected future prices:

If the prices of any good are expected to increases then the supply of those products will decrease today. If the price increases then any company will go for the products which will generates higher profits in future.

Example: if the price of the laptops is expected to increases in the future then the company will decrease the supply of the laptops and the company is willing to sell the laptops at higher prices to make higher profits.

The number of suppliers:

If there is large number of suppliers is there of a product then normally the supply of then product will increases, and as firms enter an industry, the supply in that industry increases. For example in the market there are different types of companies that will produce laptops like Sony, hp, apple..Etc. because of lot of companies are there in the computer marketing industry the supply of the computers is high. If any new company enters the industries then the supply of the computers in the market will increases.

Technology:

In today’s business environment technology will plays an effect on the supply of any product. The technology means the way that factors of production are used to produce the product. In any industry if any new technology was introduced it will influence the supply of that product. If the technology that was introduced, decreases the cost of production of the product by utilisation of all the resources, then the supply of that product will increases.

Example:

Because of new methods that was introduced in the factories the cost of production of computer chips is decreases and the supply of the computer chips increases.

The state of nature:

The state of nature means the natural forces that influence production. The state of nature may include state of weather and, more broadly the natural environment .there is increases the supply of the products when there is good weather condition, otherwise the supply of the products will decreases.

Ex: good weather conditions will influence the supply of agricultural products and bad weather will decreases the supply of agricultural products .the extreme natural events such as earthquakes, tornadoes and hurricanes can decreases the supply of all the products.

6. Market equilibrium:

Equilibrium is a situation in which opposing forces balance each other. Equilibrium in market occurs when the price of the product balances the plans of buyers and sellers. The point at which the quantity demanded equals the quantity supplied. The quantity at equilibrium is the quantity bought and sold at equilibrium price. The price will regulates the buying and selling plans and adjusts when plans don’t match.

A shortage forces the price up:

We have seen that if the price is below equilibrium, there is a shortage and that if the price is above that equilibrium point, there is surplus.

Surplus of computers forces the price down:

When there is surplus of computer systems in the market, the producers cannot force the consumers to buy more than they plan, so the quantity bought will decreases. Some producers, unable to sell the quantities of computer systems they planned to sell, decrease their prices. When the producer decreases the price of computer, the price falls towards equilibrium point. The decreases in the price of computer decreases the surplus because it will increase the quantity demanded.

Shortage of computers forces the price up:

If there is shortage of computer systems in the market then the consumer cannot force the producers to sell more than they plan, so the quantity that is actually offered for will decreases and then the price of the computer system will increases and move it towards equilibrium point.

Best deal available for buyers and sellers:

At the price at which the quantity demanded and the quantity supplied is equal, neither buyers nor sellers can do business at a better price. Buyers pay the highest price they are willing to pay for the last unit bought, and sellers receive the lowest price at which they are willing to supply the last unit sold.

Increase in demand:

An increase in demand for the computer system there is shortage at equilibrium price of computer. To eliminate the shortage price of computer must rise. The price that makes the quantity demanded and quantity supplied equal again. When demand increases, both the price and the quantity increases

Decrease in demand:

A decrease in demand for the computer system will lead to increase in price of computer and the quantity decrease. When the supply of computer systems in the market increases, the quantity and the price will falls down. When the supply of computer systems decreases, the quantity demand decreases and the price of computer systems will rises.

7. Other factors affecting the price decision of computer system:

The price decisions of a computer system can be influenced by many factors other than supply and demand. The factors which will influence price of computer in the free market can be categorized in to two.

7.1 Internal factors:

There may be some internal factors that will have effect on price of the computer systems in the market such as marketing objectives of the company, marketing mix…Etc.The marketing objectives of the company may include survival, current maximization of the company, market share leadership and product quality leadership. The factors of marketing mix may include product design, non price decisions, distribution, promotion…etc.

� Costs:

The objective of any company producing the computer systems is profit maximization. The company will fix the price of the product based on the fixed and variable cost .the price will be fixed so as to cover the cost that is made on the computer system. Lower price to cover variable costs and some fixed costs to stay in business. The company will fix the prices that produce maximum current profit.

The external factors that will affect the price of the computer is demand and supply of the computer systems, competitors, prices and offers, economic conditions, government regulations, social concerns..Etc

* Cost production:

The cost of production of computer systems is one of the important factor that will influence the price of the computers .based on the cost of production of the computer the price of the computer will be fixed. If the cost of production of computer increases then the price will be high and if cost of production is low then the price will be low.

Example:

There are different types of companies are there in the computer industry like APPLE, SONY, HP, COMPAQ…Etc .the price of the computer will differ from company to company. The price of the laptop produced by the apple company is �900, the price of Sony laptop is �500, the price of laptop produced by HP Company is �400, and the Compaq laptop cost is �430.Based on the cost of production of the company will differ.

� Technology:

Technology is one of the important factors that will influence the price of computers. In olden days the cost of production of computers is so high, and the price is also so high. The cost of hp Compaq laptop in 2005-06 is around �650- 700. But the cost that laptop with high configuration is �430.

The main reason behind this is new technologies are introduced in the production of computers in the industry. The new technologies have decreased the cost of production of computers and many more alterations are made in the designing and implementing technologies.


� Prices of other company computer systems:

The prices of other company computer systems are one of the factors that will influence the demand and supply of the computers.

Example:

Today the price of Sony laptop in the market is �500. If the company increases the price from �500 to �600, then it will affect the demand and supply of Sony laptops. When the price of one product increases then the user can not afford to buy and he can go for other substitute products. The substitute for the Sony company laptop is hp, apple, Compaq…Etc. the user may go for the products which are available in the market at lower price, then the demand for other company laptops will increases.

* Return on investment:

The basic aim of any manufacturing company is to gain some return on the product. The level of return along with the amount of sales will determine the processing levels needed to meet the return on the investment. While fixing the price of the computer the company will take into consideration the fixed cost, variable cost, taxation and the percentage of return on the investment.

Example:

Normally the price for the product will fix like this

Price = fixed cost +variable cost + taxes….

Cash flows:

Any company may take decisions at a level that will ensure that revenue will cover at least cost of product and marketing expenses, normally this will happen in case of new products. While marketing new products the company will make decisions to cover the manufacturing expenses and cost of marketing.

� Market share:

Normally for the new products the price decreases will take to fix some market for the product. For the existing products may use price decisions to ensure that they retain market share in instance, when there is high levels of market share.

� Marketing strategy:

The marketing strategy is one of the factors that will influence the price decisions of a computer system. The final price of the computer system will be influenced by how the marketing decisions are made by the company.

Normally the company who sells high quality products would be expected to fix price for their products in a range that will add to the perception of the product being at high level.

Example: Apple Company.

Apple company is producing different products like I phone, I pod, laptops …etc. the products that are produced by the apple company are having some goodwill in the market in terms of quality and usage. The cost the products that are produced by the company are high when compared with the other company products. The cost of the products should not decrease because the company will fix the price based on the perception and expectations of the company.

The cost of laptop produced by Apple Company is �900, cost of iPod with 2 GB memory is �46 and iPod of 4 GB size is �60, cost of phone is �450.

The apple company should not decrease the price of the products even the price are high when compared to other company products.

7.2 External factors:

* Elasticity of demand:

The elasticity of demand for the computer systems is one factor that will influence the price. When there is high demand, the price will be high; when demand for computer products decreases then the price wills decreases

* Government regulations:

The regulations are one of the factors that will influence the price of computer. The government may pass regulations regarding exports, imports, taxes…etc. there are some companies which will import some products from other countries , if the government charges more charges on the imported products , it will affect the price of the products. If government decides to increase the percentage of taxes on the products, it will result to increase the products.

In any country there are different types transactions takes place like interstate sales, intrastate sales, exports, imports…etc. based on the government regulations the price of the product and supply of the computer systems will change.

� Economic factors:

In any Economic conditions of country will have more impact on the prices. If inflation problem rises it will affect not only the companies and also it will affect the prices of the product and income of the people. If the economic condition is good then there will be more opportunities for employment and more sources of business, then prices also will be high.

8. Conclusion:

So in today’s open market business environment the pricing of computers became difficult task for many more companies. While making price decisions regarding a computer system we have to take into consideration the demand for the product, supply and cost of the product.

We have to take into consideration the internal factors like costs, cost of production, technology, prices of other company systems, cash flows, market share…Etc and external factors like elasticity of demand, government regulation, and economic factors.

The price decisions must be like that which will be suitable for both buyers and sellers at equilibrium point.

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