Sunday, 28 October 2012

Is iPhone 5 a want or has it become a need in modern world

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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