Over the past 40 years, technological advances have reduced the cost of computer chips. How do y

Over the past 40 years, technological advances have reduced...

Key Concepts

Technological Advancements

This concept refers to the ongoing improvements and innovations in technology, such as the development of more efficient computer chips. These advancements not only improve performance and capabilities but also reduce production costs over time, affecting a wide range of industries and products.

Cost Reduction and Economies of Scale

As technological advancements lead to cheaper computer chips, manufacturers benefit from lower costs, which can then be passed on to consumers in the form of lower prices. This process, often enhanced by economies of scale, triggers increased demand and wider adoption of the technology across markets.

Market Dynamics and Supply-Demand Shifts

Lower production costs lead to an outward shift in the supply curve, resulting in lower prices and higher quantities sold. This shift affects various markets by changing consumers’ incentives and the profitability of different products, subsequently altering their market structures and competitive landscapes.

Substitution Effect in Consumer Choice

When the cost performance ratio of computers improves due to cheaper components, consumers are more likely to substitute older, less efficient products such as typewriters with modern computers. This substitution effect explains shifts in consumer behavior in response to relative changes in prices and technological features.

Complementary Markets and Network Effects

The reduction in costs for computer chips not only impacts the market for hardware but also stimulates the development of complementary products like computer software. As computers become more affordable and ubiquitous, the demand for software and related services increases, which further reinforces the market growth.

Transcript

00:01 Okay, question five is saying that over the past 40 years, the cost of computer chips has go down.

00:09 So how is this going to affect the market for computers, computer software, and typewriter? okay, so here, the red square here is our computer chips.

00:23 So we have to identify the chips relation with the following three items.

00:30 Okay, so first let's take a look at this computer.

00:35 So we can see that in order to run a computer, we have to install this chip inside of it.

00:42 So computer and computer chips, they're like complements.

00:46 You have to use one with another.

00:50 So there are compliments.

00:51 And also, this cd here represents computer software.

00:57 So we can see that the software in computer are also complements.

01:08 So in order to run a computer smoothly, you need a chip to a chip to store the memory of the computer, right? and you also need the software to run like lots of embedded function.

01:29 So these are also compliments to each other.

01:35 But for a typewriter, we can see that typewriter is like a substitute for laptop or computers.

01:46 Why is that? because nowadays people are typing on their laptops or computers.

01:52 No one is using typewriters because maybe they're slower or like they're not very efficient...

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