Suppose a technological advance reduces the cost of making computers.
1- Draw a supply and demand diagram to show what happens to price, quantity, consumer surplus (CS), and producer surplus (PS) in the market for computers.
2- Computers and adding machines are substitutes. Use a supply and demand diagram to show what happens to price, quantity, CS and PS in the market for adding machines. Should adding machine producers be happy or sad about the technological advance in computers?
3- Computers and software are complements. Draw a supply and demand diagram to show what happens to price, quantity, CS and PS in the market for software. Should software producers be happy or sad about the technological advance in computers?
4- Does this help explain why software producer Bill Gates is one of the world’s richest men?