Textbook Problem

One of the largest changes in the economy over the past several decades is that technological advances have reduced the cost of making computers.

a. Draw a supply-and-demand diagram to show what happened to price, quantity, consumer surplus, and producer surplus in the market for computers.

b. Forty years ago, students used typewriters to prepare papers for their classes; today they use computers. Does that make computers and typewriters complements or substitutes? Use a supply-and-demand diagram to show what happened to price, quantity, consumer surplus, and producer surplus in the market for type- writers. Should typewriter producers have been happy or sad about the technological advance in computers?

c. Are computers and software complements or substitutes? Draw a supply-and-demand diagram to show what happened to price, quantity, consumer surplus, and producer surplus in the market for software. Should software producers have been happy or sad about the technological advance in computers?

d. Does this analysis help explain why software producer Bill Gates is one of the world's richest people?