Economics – Consumer and producer surplus | e-Consult
Consumer and producer surplus (1 questions)
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Factors Influencing PED and PES for Smartphones:
PED:
- Availability of Substitutes: Many alternative devices (e.g., tablets, feature phones) exist, making demand relatively elastic.
- Necessity vs. Luxury: Smartphones are increasingly considered a necessity for communication, work, and information access, making demand relatively inelastic, especially for certain demographics.
- Proportion of Income: Smartphones represent a significant portion of many consumers' incomes, making demand relatively inelastic.
- Time Horizon: In the short run, demand may be relatively inelastic as consumers rely on existing devices. In the long run, demand becomes more elastic as consumers have more time to adjust their purchasing decisions.
PES:
- Time Available to Adjust Production: Smartphone manufacturers have significant time to adjust their production capacity in response to changes in demand.
- Ease of Storage of Inputs: Most smartphone components are readily available and can be stored easily.
- Availability of Spare Capacity: Smartphone manufacturers often have spare production capacity, allowing them to respond to changes in demand.
Impact of a Technological Innovation (Foldable Screens):
The introduction of foldable screens would likely have the following effects:
- Demand: Initially, demand for smartphones with foldable screens might be relatively inelastic due to high consumer interest and limited availability. However, as the technology becomes more widespread and prices adjust, demand will become more elastic. The availability of substitutes (e.g., tablets) will also influence the elasticity of demand.
- Supply: The initial supply of foldable screens would likely be inelastic due to production constraints and high development costs. However, as production scales up and technology improves, supply will become more elastic.
- Equilibrium Price and Quantity: The initial price of foldable screen smartphones would likely be high due to the high cost of production and limited supply. The quantity traded would also be relatively low. As production increases and the technology matures, the price will fall, and the quantity traded will increase. The extent of these changes would depend on the relative elasticities of demand and supply. If demand is relatively inelastic and supply is relatively elastic, the price will fall significantly, and the quantity will increase modestly. Conversely, if demand is relatively elastic and supply is relatively inelastic, the price will fall significantly, and the quantity will increase substantially.