iPhone Market’s Supply and Demand

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Topic: Business & Economics
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Introduction

The iPhone has gained a lot of popularity, especially after the Forbes magazine rated its manufacturing company, Apple Inc., as the most admired smartphone producer in the world. Having been first produced in 2012, the iPhone has been sold in various markets of the world. However, the CEO of Apple Inc. stated that the target sales of the company of about 10 million within the first year were not achieved and instead only half of the target figure was achieved (IPhones 2011). He gave the main reason as being an inadequate supply of the gadget, among other factors of demand and supply. This paper is an in-depth analysis of the various factors that affect the market of the iPhone with the help of demand and supply diagrams/graphs.

Effect on the iPhone market in case of a reduction in smartphones prices

As mentioned earlier, the iPhone is one of the many brands of smartphones available in the market. Other companies such as Nokia and Samsung have imitated Apple Inc. to manufacture a variety of smartphones currently trending in the market. However, it is possible to conclude that the market of iPhone is oligopolistic given its characteristics. An oligopolistic market is where there are few sellers offering a certain service or commodity (Perloff 2008). This kind of market depicts a demand curve that is usually kinked being elastic at first then later on being inelastic, as shown in the diagram below.

Kinked demand curve of the iPhone market
Figure 1. Kinked demand curve of the iPhone market

It is elastic in the beginning because the sellers are few hence in case of a change in price the demand is greatly affected. Thus, if the prices of smartphones are reduced, it is expected that their demand will tremendously shoot up, causing entry of more producers of the smartphones (Perloff 2008). After some time, more sellers make entry into the market, and the prices become inelastic such that price changes seldom affect the demand. In the end, the prices become sticky since the sellers will not be able to change the prices, and if they do, the demand goes down tremendously.

Effect on the iPhone market in case of Launch for new iPhone advertising campaigns

Advertising is one of the many factors that affect the demand for a commodity or service. This is because it is aimed at creating awareness of the product or service in the market thus making it known to those that did not know it or explain further to those that had little information regarding the product. In this case, when Apple Inc. launches a new iPhone advertising campaign that will feature world-renowned celebrities such as Richard Branson, Bob Dylan, and Jim Henson among others, the demand of iPhone is expected to increase. A case in study is the recent featuring of Gwen Stefani, who is a world-class celebrity in the advertising campaign of iPhone, which led to increased demand of the smartphone. This is because research has shown that advertising campaigns give successful results on market creation and expansion among teenagers as well as young adults. Hence, the incorporation of celebrities in the iPhone campaign is bound to increase the popularity of the product among teenagers and young adults who happen to be the main users of smartphones in the world. An increase in demand of the iPhone will make the company consequently increase its price, given the shortage that will arise if supply remains constant (Mankiw 1998). This is illustrated in the diagram below.

Showing the effect of advertising
Figure 2. Showing the effect of advertising

The diagram shows how advertising of iPhone leads to demand shift from point D1 to the new point D2, thus creating a shortage of the product caused by increased demand from q1 to q3.

Effect on the iPhone market in case of technological improvement

Given the technological advancements in every sector of the economy, it is expected that the iPhone technology is bound to improve with time. Technological advancements are expected to come with several benefits among them lower production costs of the product, efficiency on the usage of the product, reduced time in production and improved function ability just to mention a few (Samuelson & Marks 2003). Technological advancements will affect the supply of the iPhone. A reduction in the cost of production of the iPhone due to improved technology will make Apple Inc. produce more iPhones. Because Apple will not have kept up the demand of iPhone in the market, it will be forced to reduce the price of the iPhone to get rid of the market surplus. This can be depicted in the diagram below.

Showing the effect of technological improvement
Figure 3. Showing the effect of technological improvement

The diagram shows the supply curve shifting from point S to S1 rightwards, thus creating a new point of equilibrium with both new points of quantity demanded and price (Heakal 2012).

Effect on the iPhone market in case of Increase in personal tax allowances

iPhone is one of the most expensive gadgets in the market of smartphones. The price is so high that it is considered a luxury good. Most often than not, it is owned by people in the high-income class who can afford the product. People in the average and low-income classes are not in a position to buy an iPhone since buying such expensive smartphones leads to opportunity costs where essential items could be forgone. Thus, income is essential in determining the buying power of consumers hence subsequently affecting the demand of the product (Sullivan & Steven 2003).

An increase in personal tax allowance by the Chancellor of the Exchequer will mean that the proportion of consumer income will increase. This will, in turn, increase the percentage of consumers in the high-income class hence increasing the number of consumers who will buy the iPhone. It can, therefore, be concluded that the demand of iPhone will, therefore, increase when personal tax allowance is increased.

Increase in demand
Figure 4. Increase in demand

The diagram above shows an increase in demand from D1 to D2 once the income moves upwards (Sullivan & Steven 2003). This is interpreted as a shift in the demand curve towards the right.

Conclusion

From the above discussion, it can be seen that there are quite several factors that could affect the market demand and supply of the iPhone. Some of the discussed factors cause the demand curve to shift or change while others cause the supply curve to shift or change (Keat & Young 2009). Regardless of the route taken by the demand and supply curves of the iPhone market, it is important to note that any deviation from the normal state of market factors there is bound to be changed in the market of the product (Keat & Young 2009).

Reference List

Heakal, R 2012, Economics Basics: Supply and Demand.

IPhones 2011, Sales and Revenue.

Keat, P & Young, P 2009, Managerial Economics- Economic tools for today’s decision makers, Pearson Prentice Hall, New Jersey.

Mankiw, N 1998, Principles of Economics, Dryden Press, San Diego.

Perloff, J 2008, Microeconomics Theory & Applications with Calculus, Pearson Prentice Hall, New Jersey.

Samuelson, W & Marks, S 2003, Managerial Economics, Wiley, New York.

Sullivan, A & Steven, M 2003, Economics: Principles in action, Upper Saddle River, New Jersey.