Posted: October 9th, 2022

Microeconomic Analysis of the Demand and supply of compact Discs

Microeconomic Analysis of the Demand and supply of compact Discs
A compact disc CD was developed in 1982 by Sony and Philips, operating as a digital optical data storage disc used to store and play audio recordings. Over the years, several CDs were introduced that brought immense changes in the music industry in the united states and globally. The CDs’ advent leads to its prices plummeting to commodity level resulting from the unprecedented demand levels. However, with technological innovations, compact discs’ demand has declined in the past decade (Karl, 2019). The microeconomic analysis makes it easier to determine producer behavior, consumer behavior, and the general overview of the markets. It analyses the demand and supply patterns and shifts to ascertain the price equilibrium. This paper seeks to discuss the supply and demand overview for compact discs in the United States.
It is assumed that suppliers and consumers engage in free and fair trade without external interference in a competitive market. Ideally, some factors interfere with the trade and influence the demand and supply curves. According to the Recording Industry Association of America (RIAA), the sales of the CDs contribute 2.3% of the revenues from the music industry, a clear indication of the decline in its popularity as compared to the past decades where it contributed slightly over half of the total revenue from the music industry. Statista (2019). A market system provides a platform for suppliers to create a scarcity tendency to instigate consumers to reveal their desires. It is almost impossible to obtain a situation where the market is at an equilibrium since either shortage or surplus depends on the demand.
Shifts in demand and supply
Supply and demand are used in microeconomics as a price determination economic model in a market. The analysis of the demand ad supply and its subsequent shifts plays an imperative role in the postulation of the unit price of a commodity in a competitive market, thus resulting in the economic equilibrium for quantity and price of the commodity. Different factors influence the shift in demand or supply of a commodity. Herein are some of the determinants.
Consumer incomes
In this case, when consumer income rises, the demand for commodities increases, more especially for normal goods. However, for inferior goods, the shift in demand decreases as the consumer incomes increases. Buyers’ increase in the number of buyers in a market influences the demand and supply of a product. In cases where there is a decrease in the customer base for the products, the demand significantly decreases (Daniel, 2019).
Related products
Prices of closely re products the ad event of closely related products influences the products’ demand, especially for substitute products. For essence, the use of compacts discs declines following the advent of other cheaper alternatives such as streaming services and other digital service providers of certain products (Daniel, 2019).
Technological changes
The increased technological advancement in the digital realm has impacted the demand and supply of different goods and services. When technological advancements favor the commodity, the demand is likely to increase as the profit margin increases, coupled with increased market sizes. Technological innovations bring forth a variety of products that could result in consumers’ preference shifts. With the increase in demographic change, more young people are using the internet and thus adopting the last modes of storage and digital audio recording. The suppliers tend to shift to options that reduce production costs while increasing their profitability. Moreover, technological changes influence the commodity’s future due to its dynamic nature (Daniel, 2019).

As of 2004, the sales of the CDs had reached over 30 billion. However, there was overtime; the use of CDs had drastically reduced as other forms of digital storage reduced its consumption. By 2010, the use and purchase of CDs had dropped by slightly over 50%. More advancement in technology was one of the greatest’s and imminent threats to the production of CDs. However, it was still used as the industry’s main distribution model (Playback, 2010). In 2014, with the increasing popularity of Youtube, iTunes, Spotify, among other digital distribution methods, most revenue proceeds from the physical format sales of CDs had been redirected to these digital music services as the revenues from these platforms surpassed those from CDs.
Moreover, the increase in streaming options has increased rapidly as sales from CDs continue to decline. CDs’ future is greatly threatened with the entry of more heavyweight players, such as the recent launch of Amazon HD services that allows for higher quality streaming services coupled with CD standard services. Statista (2019).
Demand shift
Demand entails the measure of the consumers’ willingness to buy food or service. When there is an increased willingness to purchase goods and services, thus that is market demand. It influences the supplier’s production of goods and services and their potential profitability. Therefore, the demand cover is a relationship between two variables the price and quantity. In most economic cases, the ceteris paribus assumption is applicable whereby other factors are inheld constant. However, a change in these factors means the supply and demand may not hold (Daniel, 2019).
The demand curve is a graphical representation of the relationship between the price of the commodity about the quantity demand; this is a price quantity model that influences the market in response to the factors that influence the decrease in demand and supply of the compact discs. The shift in the commodity demand curve will intersect with the supply curve of the commodity, in this case, the compact disc, and in turn, resulting in an equilibrium price and quantity. This will determine the viable price, demand, and supply of the compact discs at that particular time (Breckenridge, 2017). Notably, future expectations, in this case, more technological improvements, have led to possible buyer interest in purchasing the compact discs. The law of demand influences the price of a commodity, whereby a price increase reduces the quantity demanded while an increase in demand will respond to the decrease in price. However, the law is only applicable to most goods. For this case, the decrease in the demand for the compacts resulted in a decrease in the price due to its form of obsoleteness.
Supply of the compacts disc
Supply entails the quantity of product offered concerning a function price. The supply curve can either shift outwards or inwards in most cases about the demand for the product. The relationship between demand and supply differs between normal and inferior goods. Following the technological advents and the more flexibility of the related products, the compact discs’ supply decreased. This means that there is a shift in the curve towards the inwards. The decrease in supply in most cases, especially due to shortages, results in higher commodity prices (Karl, 2019). However, in this case, the decrease in supply is influenced by the decrease in demand that forces the suppliers to decrease the price of the compact discs to attract consumers who are gravitating more to the alternative options to download and store music, such as through YouTube, Spotify among other technological advents.
Therefore, an inward shift of the supply curve influences the price of the goods. The producers do enjoy the economies of scale following a decrease in supply. Therefore, the technological changes have influenced the supply of compact discs leading to its decrease. However, they are not necessarily phasing out of the market since consumers are adamant about adopting the new technology and still prefer to use compact discs despite the availability of other relatively cheap options. Notably, most of the suppliers opted to shift to other alternative products in response to technological changes (Daniel, 2019). Therefore, they enjoy fewer capital inputs as the cost per unit output decreases. Due to the drastic decrease of demand for compact discs, their intersection of the supply and demand curve does not lead to an equilibrium price since the products demanded is not equivalent to the price. Therefore, it is impossible to obtain an equilibrium price or quantity.
Conclusion
The demand for compact discs continues to decreases with technological innovations. There is a great shift of consumers from using the compact discs for data storage disc used to store and play audio recordings to more advanced technological innovations such as the streaming services, iTunes, Spotify, and some opt to use vinyl. Microeconomic analysis of the demand-supply and the compact disc market’s market helps to reveal the behaviors of consumers and a form of future projection of the compact discs market, especially to prospective investors who seek to venture into the niche. The shift in the demand and supply curves of the compacts discs is a clear indication of the uncertainty of the compact discs’ performance as more technological advancements emerge that seek to replace and likely phase the commodity of the market completely.

References

Breckenridge, R. S., & Tsitsos, W. (2017). revitalizing vinyl. Contexts, 16(4), 72-74.

Daniel, R. (2019). Digital disruption in the music industry: The case of the compact disc. Creative Industries Journal, 12(2), 159-166.
Karl, E., CASE, F., OSTER, R., & Sharon, E. (2019). PRINCIPLES OF MICROECONOMICS. Pearson.
Playback, Joseph (May 30 2010). “As CD Sales Wane, Music Retailers Diversify.” The New York Times. (Retrieved Jan 14, 2021)
Statista Research Department (2019) https://www.statista.com/statistics/186772/album-shipments-in-the-us-music-industry-since-19839( Retrieved Jan 14, 2021)

Statista (2019)

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