Computers Are a Complement to Computer Software

question 515

Essay

Computers are a complement to computer software. Suppose the price of a computer falls. Simultaneously, suppose that the number of companies selling computer software decreases. How do these changes affect the price and quantity of computer software?

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Definitions:

Moral Hazard

A situation where one party in a transaction has the opportunity to take risks because the costs that those risks entail will not be borne by that party.

Portfolio Risk

The variability of returns from a portfolio of investments.

Utility Function

A mathematical representation that ranks preferences or satisfaction levels individuals derive from consuming goods and services.

Risk Averse

The tendency of individuals or entities to prefer certainty over uncertainty, often choosing safer options over riskier ones to minimize potential losses.