Economics Essay Example | Topics and Well Written Essays - 1250 words

Economics - Essay Example It is a type of RAM that retains its data only if it is continuously accessed by a refresher circuit, in the absence of which it loses its contents. All personal computers use DRAM, as against SRAM (static random access memory), because they are much cheaper and occupy much less space (PC Guide, 2001). Online technology news publication Network World reported on January 4, 2011, that towards the end of 2010 until the date of writing, there had been an oversupply of DRAM which sent prices to its lowest price in one year (Jennings, 2011). The situation was blamed on post-holiday oversupply, also sending prices for personal computers lower. 3.0 Analysis 3.1 Supply and Demand Demand is â€Å"a desire for a good, backed by ability and willingness to pay.† Market demand is the cumulative demand of all buyers (Dwivedi, 2005, p. 34). The law of demand is â€Å"all things being equal, the amount demanded increases with a fall in price and diminishes with a rise in price† (Marsha ll, quoted in Dwivedi, 2005, p. 35). In the article, it was mentioned that earlier in 2010 there had been a forecast of shortage for the DRAM. The forecast was based on a Goldman Sachs PC unit growth forecast made in March 17, 2010 (Telecoms Korea, 2010). Because DRAMs are major components of PCs, there was a projected increase in demand for DRAMs to service the higher demand for PC manufactures. As the market unfolded for the rest of the year, however, it became apparent that the forecasted demand was overestimated. Supply is â€Å"the quantity of a commodity which its producers or sellers offer for sale at a given price, per unit of time.† Market supply is the sum of supplies of commodity by all individual firms (Dwivedi, 2005, p. 47). The law of supply is â€Å"all things being equal, the quantity supplied increases with the increase in price, and decreases with the decrease in price† (Dwivedi, 2005, p. 47). In the article, it was mentioned that beginning December, as the holiday shopping season lost momentum, major semiconductor manufacturers continued to output DRAMs in large volume, purported to stay competitive. This was due to the earlier forecast of a DRAM shortage, for which companies increased factory capacity, that in turn required higher production outputs to even out the additional overhead and maintain a lower per unit cost. Figure 1 following is a graph of the superimposed supply and demand curves. It is evident that increasing price leads to an increase in quantity supplied and decrease in quantity demanded. The point at which the two curves intersect is the equilibrium point, representing the price at which the quantity demanded is equal to the quantity supplied, and transactions take place. It is at this point where the market is made. There are shaded portions of the graph where surplus and shortages are represented. The interest of this paper is the area above the equilibrium point, where surplusage, or oversupply, occurs. At these prices, the quantity supplied exceeds the quantity demanded, forcing the suppliers to lower their prices. Figure 1: Law of Supply and Demand 3.2 Oversupply (Surplus) Oversupply occurs when the quantity supplied exceeds quantity demanded. This would tend to drive prices down, because suppliers would tend to outbid each other in a price war