8 Answers | Add Yours
The basic laws of supply and demand do specify that supply will go up if price does, because demand will go down. With technology, strange things happen. When a product is first released, everyone wants it but not everyone buys it. Sometimes a few trendsetters will buy the product at first and others will wait to see if it's worth the hype. Sometimes companies will give these first responders special prices, by lowering the price when the item first comes out. However then they raise the price, and by that time everyone wants one due to the buzz created by the first responders. Supply can actually go down if there is enough of a run on the product, even though the price has gone up from the original test price.
I think other editors have identified that if the price of a product goes up it does not necessarily mean that the sales will go down - in some bizarre way it could actually make it go up, as people may associate greater value with a product if the sale price is higher. Especially with the new "consumer technology goods", great prestige and status is given to those who have Ipads etc, so normal logic may not apply.
It seems to me that there is an entirely new dynamic regarding pricing and demand when it comes to these kinds of cutting-edge tech products. Note the long lines and long waiting lists and scarcity of product for these things--as mentioned above, there are plenty of people who will pay any price for the prestige of owning and using what others do not.
I agree with the previous two posters. An additional element to consider is the emergence of newer versions of a product and newer versions of competitive products. With the emergence of newer versions or new products, the cost of the old product is likely to decrease as customers rush to buy of the new products. In addition suppliers would also reduce the cost of the older versions in order to move them more quickly.
Both of the above posts are wrong, in my opinion. In fact, I get very angry at my college Intro to Econ students when they make this mistake.
A change in the price of an item does not change demand, it changes quantity demanded. This is because the term "demand" refers to the "schedule" of how many of an item are demanded at every price point. So when you change the price, you are moving along the demand curve, you are not moving the curve itself.
Allow me to quote from the text I usually teach from "...any decrease in price along the vertical axis will cause an increase in quantity demanded..." Or yet again "A change in quantity demanded is a movement along a stationary demand curve caused by a change in price."
Demand only changes when people want more or less of a product at a given price, not when the price changes and that impacts how many of the product they want.
Generally a price increase in a product will cause the demand for that product to go down. As the above poster commented though, electronics sometimes do not follow that same trend. Demand for a product is generally dependent on more than one variable.
Price does have an effect on overall demand, but there are variables to consider in that economic equation. Since you are talking about technology items that are for sale, there is both a certain style and status associated with having them, and a different sort of shopping behavior that happens with tech-addicted consumers.
Raising the price will, at some point, price many out of the market. As cool and handy as they are, an iPod or iPad that costs $3000 will not have a lot of buyers. Large companies and manufacturers such as Apple are experts at maximizing their profit by charging what their products' popularity will allow, without pricing too many people permanently out of the market. Some people I know, and I believe this is common, "chase" the next new thing on the tech market, and will spend much more than ordinary shoppers to obtain it, and to obtain it first. There is a sort of feeding-frenzy behavior associated with such products, especially during their initial release, that seems to defy normal rules of demand.
The other factor in this is what the competition is doing. If comparable products with comparable quality are available at a cheaper price, then consumers are less tolerant of price increases, even if they are modest ones. This is the whole concept behind a "sale" event.
Price does change the quantity demanded, and the resulting change will represent a change along the demand curve. So if the price goes up, quantity demanded should go down, but there might be other variables involved, so it is hard to say by how much or how much the quantity demanded will change as a percentage of its original price.
We’ve answered 319,644 questions. We can answer yours, too.Ask a question