The price of a commodity in the market is determined by factors such as own price, price of substitutes, price of compliments, and consumer tastes and preferences, among others. For a normal good, an increase in its price decreases its demand. Substitutes are commodities that serve the same purpose. When one of such products becomes expensive, consumers avoid it and shift to the substitute. Complements are goods that are used together. The amount of a good bought by consumers at a given price is influenced by the price of substitute goods that are available for the consumer to choose from. The consumer may change their tastes and preferences in favor of a certain commodity. The demand for that commodity will increase. These factors affect the demand and supply of a commodity. This paper examines the effect on the market of iPhones when several events relating to these factors occur.
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The price of smartphones reduces
Smartphones and iPhones are substitutes. This means that they can serve the same purpose. Then when the price of smartphones reduces, the consumers of iPhones will shift to smartphones because they are cheaper. Fewer units of iPhones will be bought, while smartphones will have a higher demand. The table below shows the changes in the prices of smartphones and the effects it has on the demand and the supply of iPhones. The figures are not real and are only used to demonstrate the relationship between the price of smartphones and the market for iPhones.
|Price of smartphones||Demand for iPhones||Supply of iPhones|
The graph shows that the price of smartphones and the demand for iPhones move in the same direction. According to the graph, the amount of iPhones bought is dependent on the prevailing price of smartphones. People will replace iPhones with smartphones.
The supply of iPhones will also move in the same direction with the price of smartphones. Suppliers will supply less of iPhones and increase the supply of smartphones. This is shown in the graph below:
Featuring celebrities in the advertisement campaign is called celebrity endorsement. According to Strunck (2011), people tend to buy products that are associated with a particular celebrity. The demand for iPhones will increase when celebrities such as Richard Branson, Bob Dylan, Justin Long, and Jim Henson are featured in a new iPhone advertising campaign. Celebrities have fans that would have confidence in the products they consume. A celebrity with a big number of fans will improve the sales of a given product when they are used for endorsing that product.
In this graph, the relationship between the celebrity popularity level and demand for iPhones is demonstrated. Celebrity popularity level is defined by the number of followers the celebrity has. Demand for iPhones is the number of iPhones the consumers are willing to buy at the price that is prevailing in the market (Prasch, 2008). The trend shows that the demand for a product that a celebrity is used to endorse increases as his level of popularity (Loewen, 2005).
Improvement in technology for producing iPhones
Improvement in the technology used in producing a product increases efficiency and cost of producing the product. A lower cost of production is a relief to the consumers because they will pay less for the goods (Ian and Ishaq, 1991). If the technology for producing iPhones is improved, the demand will increase because the price of iPhones will be less.
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The graph below shows the changes in the demand for iPhones at different levels of technology. The figures used in this graph are arbitrary and do not represent real figures. The curve is upward sloping, meaning that the two variables, demand for iPhones and growth in technology, move in one direction.
Improvement in technology also increases the supply of iPhones. The producer can produce goods in large scale to meet the growing demand. However, as supply increases, it might, at some point, exceed demand. This creates a supply surplus in the market. This will push the prices further down because suppliers are willing to sell their commodities at a lower price so that the market clears. The market must respond to the demand and supply forces and give a price that is favorable to both consumers and producers.
The effect of the increase in personal tax allowance
An increase in personal tax allowance leaves the consumers with more money to use in the purchase of goods and services. According to Meade (2013), personal tax allowance is the amount of income that is not taxed. This is a relief to the taxpayers because they will pay less to tax authorities. They will be able to buy goods like iPhones that they could not afford before. A reduction in income tax increases the purchasing power of consumers.
|Reduction in Personal tax Allowance||Demand for iPhones|
The table above shows some estimated figures for the percentage of reduction in personal tax allowance and demand for iPhones. A higher percentage in a reduction in personal tax allowance means that the consumers will pay less tax (Marshall 2012). The figures used are not real, but they explain the impact of personal tax allowance on the demand of iPhones. The relationship between the two variables is shown in the graph below.
As a percentage of reduction in personal tax allowance increases, the number of iPhones also bought increase. The y-axis represents the demand for iPhones while the x-axis represents the percentage of reduction in personal tax allowance. The upward-sloping graph shows that the two variables move in the same direction.
The reduction in personal tax allowance also affects the supply of iPhones. The supply of iPhones will increase as the demand increase. The high demand for a product causes its price to increase. An increase in price will increase supply because the suppliers want to take their products in the market when prices are higher — supply and price of the product move in one direction.
Smartphones and iPhones are substitutes. These are goods that can serve the same purpose or can be used interchangeably. When one of them becomes expensive, consumers avoid it and consume the other (Müller, 2011). A decrease in the price of smartphones means that the consumers will shift to iPhones and vice versa. The use of celebrities in advertising a product means that their fans will consume the product. Improvement in technology means that producers can produce goods more cheaply (Sandhu, 2010). The cost of production and the price of the product also decrease. Reducing personal tax allowance means that consumers have more money at their disposal to buy goods and services.
Ian, J & Ishaq, B 1991, Product demand, cost of production, spillovers and the social rate of return to R&D, National Bureau of Economic Research, New York.
Loewen, N 2005, Lemons and Lemonade: A Book about Supply and Demand, Picture Window Books, New York.
Marshall, A 2012, Principles of Economics, Digireads.com, London.
Meade, J 2013, The Structure and Reform of Direct Taxation (Routledge Revivals), Routledge, New York.
Müller, R 2011, Celebrity Endorsement in Advertising – Do Celebrities Promise Something wrong, GRIN Verlag, London.
Prasch, R 2008, How Markets Work: Supply, Demand and the ‘real World‘, Edward Elgar Publishing. London.
Strunck, M 2011, Celebrity Endorsement, Lambert Academic Publishing, New York.
Sandhu, J 2010, Microeconomics, FK Publications, New York.
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