Is iPhone 5 a want or has it become a need in
modern world
Looking at
the article
Apple is a highly recognized corporation known for gadgets
such as the iPhone, iPod, iPad, and MacBook. With the rise in social media, and
the inevitable increase in demand for technology came the iPhone 5. The launch
of the new phone by Apple has had the whole world biting their lips anxiously
waiting to get their hands on the new gadget. As the article suggests that
Apple “had run out of its initial supply and many preorders were scheduled” it
indicates high and growing demand for the product. The article also indicates
that Apple faced many “supply constraints”. There are many factors that cause
such demand and supply behavior for Apple.
The graph
above illustrates the nature of the demand and supply curve. It indicates
relatively elastic demand and inelastic supply. As the article mentions that
the demand for IPhone 5 was high and since supply was limited there was excess
demand in the market. This point E is the equilibrium, which indicates the
total quantity traded at the equilibrium price.
However, there are other factors that affect the demand and supply
of a good. For example, for clothing, seasons and what’s in style play an
important role in setting the demand for the clothing and for supply government
subsidies, taxes or increase or decrease in price of inputs, time affect the
supply of a good.
The high demand for iPhone 5 could be a result of successful
advertising campaigns by Apple, as well as a change in consumer taste. Apple
has amalgamated the most innovative technology with changing consumer needs,
creating hype for their products particularly the iPhone. By creating a “want”
for the IPhone 5 they have made a niche market product into a standard market
product, using new and innovative marketing and advertising strategies. Apple
has kept their products updated with the latest technology while catering to
changing consumer needs thus explaining the high demand mentioned in the
article.
Referring back to the article, “Apple sells over 5 million iPhone
5, supply constraint looms”, the price of the IPhone is set by the company
however the supply is limited until more is produced by the company. Hence,
both supply and price of the good are fixed and will not change with the
increase in demand for the good. In this although the company wants to produce
more Iphone5’s , they have no control over the situation as their suppliers of
raw materials are facing problems leading to an inelastic supply curve in the
short run. Furthermore, due to pressure from the trade union to increase wages
and shortage in supply, the supply curve will shift towards the left till the matter
of trade union is sorted out and cost of production is brought back to the
normal price. If apple decided to expand its horizons by developing their own
resources to produce the raw material, it would require investments, Research
and Development and most importantly time. Therefore in the long run apple will
not be able to increase supply unless they develop alternatives and the supply
curve will remain inelastic until then.
Supply being perfectly inelastic due to shortage
of supplies and strikes by trade unions
Moreover an analyst at
Topeka Capital Markets in New York in an interview claimed that Apple’s I phone 5 drew complete madness and the
rate of pre orders was extraordinary. Projections were made that the sales
would be much high once the IPhone 5 was officially launched.
Considering the article, demand is
influenced by the reviews from consumers and critics, what is in fashion also
competing phones such as the Android affect the demand of the good drastically.
The iPhone 5 has a huge demand and is considered a fashion statement however at
the same time people are moving towards the Android that decreases the demand for
iPhone 5.. As the price of the iPhone 5
is determined and set by the company and is not related to the market demand,
the supply schedule would be completely vertical. A completely vertical supply
schedule signifies that supply is perfectly inelastic and will stay fixed over
the short run until more is produced.
For supply, time is a constraint also according to the article;
Supply was affected because Foxconn Technology, the largest contractor of Apple
shut down its’ factory in China, due to the protests by their employees this
would impact the supply of the iPhone 5. As the employee’s demand higher wages
and due to the protests the factory had to be shut down which would lead to a
shortage of 2000 employees working on the iPhone 5. Additionally sources of
Reuters claim that Sharp Corp, who supply screens for Apple have been working
their way to raise funds to pay off debts causing them to fall behind schedule
in producing the iPhone 5 screen displays.
However Sharp Corp doesn’t
agree and refuses to accept the accusation made, as Sharp is supplying screens.
Demand schedule moves inwards due to substitute
‘Android’.
Graph 3 shows the decrease in demand for IPhone 5 because of the competing
phone Android that would lead consumers to move towards Android that can be
seen as a substitute this would lead the demand curve to move inwards from D1
to D as less people would demand the iPhone 5 now. Substitute goods are goods that are similar
and satisfy the same needs, People move toward substitute goods if the prices
are lower and/or if the product is of better quality. This would lead the
market of IPhone 5 market to be complex because firstly, there is a shortage of
IPhone 5’s secondly, the new Android would attract consumers
Demand and supply
curve for androids
Due to
supply being inelastic of iPhone5 the demand and supply of other android phones
will increase because people will shift to other competing smart phones when they
would not be able to get IPhone5. This is shown in the graph above; at the same
price the demand increases shifting it towards the right and it causes the
supply curve also to shift towards right further increasing the quantity.
Demand schedule moves inwards due to substitute
‘Android’.
Graph 4 shows what would happen over time to the demand and supply
schedule curve. The supply over time would become elastic which would be less
vertical as the company would produce more IPhone 5’s which would make up for
the shortage in the market and the demand will fall over time due to the
competition in the market. Over time, the price of the iPhone would fall as
well and the company might as well introduce promotions to increase the demand
for IPhone 5’s.
In conclusion, it is difficult to predict ahead of time because a
market for phones is ever changing. Over time, other factors would predict the
demand and supply for iPhone 5’s because a black market could arrive where
consumers would break their contracts or report their phones as stolen and sell
their phones to other buyers in the market or people would even purchase used
or refurbished iPhone 5’s. These are factors that usually come into play when
dealing with consumer goods.
Demand and supply curve of the market in the long run when
both supply and demand becomes elastic
Demand and supply curve of market of phones in the short run
when both supply and demand are relatively inelastic
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