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Chapter 4: Problem 5

In recent years the price of a computer has fallen. What effect is this price change likely to have on the demand for software? Explain your answer.

Short Answer

Expert verified
The fall in the price of computers—a complementary good to software—will likely increase software demand. This is because more affordable computers lead to larger customer bases, which in turn increases the pool of potential software users.

Step by step solution

01

Principle of complementary goods

Understand the basic economic concept of complementary goods. These are pairs of goods where the use of one good complements the use of another. In our case, computers and software are complementary goods. Because the use of software requires a computer.
02

Complementary goods relationship

Next, comprehend the relationship between a decrease in the price of one complementary good and the demand for its counterpart. Generally, if the price of one complementary good falls (e.g., computers), the demand for its counterpart (e.g., software) increases.
03

Reasoning for Increased Demand

Now, reason why the fall in the price of computers leads to an increased demand for software. With cheaper computers, more people are likely to afford and buy them. Consequently, the pool of potential software users increases, leading to a rise in software demand.

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Most popular questions from this chapter

State the law of demand.

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