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Advances in Technology and Effects on Demand and Supply

A relatively high proportion of people from the Philippines either work in call centres or abroad. Call centres employ 1.2 million people in the Philippines and account for 8% of the country’s Gross Domestic Product. Due to the time difference with the US, the main market for call centre services, many Filipinos have to work at night. The call centres are introducing new technology including robots.

Analyse how advances in technology can affect demand and supply.[6]

Category:

Market Structures and Competition

[CIE O level May 2017]

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Answer


Step 1: Introduction

Technological advances tend to improve production efficiency and change the taste and preferences of different products. Consequently, advances in technology have several impacts on the market of different types of goods. There are several ways in which technological advances influence demand and supply.


Step 2: Explain how advances in technology can affect supply


2.1 Advances in technology increases the supply of goods and services

Advances in technology enable businesses to increase production, particularly in the manufacturing sector. Introducing modern machines in production lines will help manufacturing companies to increase output and guarantee a better quality of their finished product. Raw materials can also be extracted more easily with the introduction of modern equipment. For example, technological innovation will help to put mines and wells that were once inaccessible within reach and increase the efficiency of extraction techniques. As a result, producers will experience a fall in costs of production.

2.2 The following demand and supply diagram shows how advancements in technology will increase supply.

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Advances in technology will increase efficiency and reduce wastage. This will shift the supply curve from S0 to S2. As a result, the quantity produced rises from Q0 to Q2 and the price of commodities will fall from P0 to P2.

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Step 3: Explain how advances in technology can affect demand
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3.1 Advances in technology may either increase or decrease the demand for certain goods and services.

Advances and technology can create new trends which will influence the taste and preferences of consumers. For example, Apple releases new and better models of iPhones and laptops every year. This company will advertise its products to make it's latest model known and this will result in a rise in demand.

Advances in technology may also render certain products obsolete. For example, the demand for radios has dramatically fallen with the arrival of MP3s. This is because MP3s are portable and playlists can be personalised.

3.2 The effect of advances In technology can be shown using demand and supply diagrams.

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Advances in technology have helped to increase the performance of iPhone. As a result, the demand curve of iPhones has shifted to the right from D to D1 over the years. The quantity demanded and supplied for iPhone increased from Q to Q1. The price of iPhone also rose from P to P1 .

By contrast, advances in technology have made radios obsolete. The demand curve for radios shifted to the left from D to D1. There has been a fall in the quantity demanded and supplied of radios from Q to Q1. The price of radios has also fallen from P to P1.

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Marking scheme
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Analyse how advances in technology can affect demand and supply.

• Advances in technology reduce costs of production (1) increases the speed of production (1) increases supply (1) lower price (1) increases quality/efficiency/reduces waste (1) lower price causes an extension in demand (1)

• Advances in technology create new products and newer versions of products (1) higher demand will increase price (1) higher prices will cause supply to extend (1)

• Advances in technology decreases demand for some products (1) example (1)

• Advances in technology may reduce demand for labour (1) as machines may replace workers (1) example (1)

• Advances in technology may enable firms to extract raw materials more easily (1) increasing the supply of raw materials (1) example (1)

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