Question

American computer manufacturers rely heavily on components produced in Chine. Show graphically and explain how the recent Corona Virus outbreak that has its epicenter in China has affected the markets for both computer components and for American made computers that use these components.  

Answer 1

American computer manufacturers use components produced in China as inputs. Recent corona virus outbreak has led to disruptions in the economies. This has impacted trade as the trade flows has reduced significantly. American manufacturers are thus now unable to import components from China. As the epicentre of the outbreak, economic activities has stopped in China. Thus, the supply of the components has greatly reduced in the market for components. The demand for Chinese components remain the same as American manufacturers needs these components. As the American manufacturers are unable to import components from China, their production cost increases. They will supply less computers and the supply curve shifts to the left. The demand for American-made computers will also decrease as people will spend less in the face of uncertainty. Assuming supply decreasing more than demand, the quantity of computers bought will decrease.

P2 Q2 Q1 Market for Components

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