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2.1 DEMAND, SUPPLY, AND MARKET EQUILIBRIUM 41
magnitude of those shifts, as well as the shapes of the demand and supply curves
themselves. Figure 2.12 shows an increase in the equilibrium quantity (from 10 billion
bushels to 12 billion bushels), which is what happened in the United States between
2006 and 2008.

APPLICA TION 2.2

A Computer on Every Desk The data in the figure are a price index showing
and in Every Home how the average price of a computer of similar capa-
bility changed over time. The index is scaled to equal
100 at the end of 1988. Values of the index are calcu-
In 1975 Bill Gates and Paul Allen founded Microsoft, lated as a computer’s price that month as a percent-
famously declaring that the company’s mission was age of the price of a comparable computer at the end
“a computer on every desk and in every home.” At of 1988. For example, suppose that the computer
the time only a handful of personal computer models priced in December 1988 was $5,000. The index’s
had been sold in small quantities to hobbyists. Those value at the end of 1990 was about 90, so a compara-
computers could do very little. Now, of course, ble computer would have cost about $4,500 (90 per-
Microsoft’s goal has largely been realized in advanced cent of $5,000) that month. The price estimates are
economies worldwide. The primary reason for this is the constructed by the Bureau of Labor Statistics (BLS).
dramatically falling price of computers, peripherals, and Quality and price of computer components changed
software. Figure 2.13 illustrates how the cost of so rapidly in recent decades that the BLS had to de-
computers fell in the last 20 years. velop special methods to estimate computer prices

100

80

60

40

20

0
Dec–1988 Dec–1990 Dec–1992 Dec–1994 Dec–1996 Dec–1998 Dec–2000 Dec–2002 Dec–2004 Dec–2006 Dec–2008

FIGURE 2.13 Quality-Adjusted Prices of Computers and Peripheral Equipment, 1988–2008
This is the graph of a price index showing how the average price of a computer of similar
capability changed over time. The index is scaled to equal 100 at the end of 1988. By
2008, the price index had fallen to about 10.