Application of Microeconomics concepts
1. Apple: ‘We can’t keep up with demand’
Global passion for Apple unabated as consumer demand outstrips supply across iPhone,iPad and iMac ranges, Apple says. As Apple announced record profits, chief executive Tim Cook confirmed that even supplies of older, cheaper models of the iPhone were not enough to satisfy demand, and that sales of iMacs fell primarily because the company could not make the new design fast enough. He added that iPad Mini demand, too, continued to outstrip supply as consumers flocked to the device that Apple’s Steve Jobs had said the company should never make. From this article we can infer that in the short run the supply curve of apple products is relatively inelastic due to supply constraints which include delay in assembling and manufacturing process.
To complicate matters, Apple’s largest contract manufacturer Foxconn Technology closed a factory in the northern Chinese city of Taiyuan after a riot broke out among 2,000 employees. Foxconn did not confirm which plants supply Apple, but an employee told Reuters the Taiyuan plant is among those that assemble and make parts for Apple’s iPhone 5.Apple referred questions on the factory to Foxconn. The California company also assembles its devices at factories run by Pegatron Corp. On the parts side, Apple’s key supplier for screens, Sharp Corp, has been struggling with high costs and scrambling to raise funds to pay debt. Sources had told Reuters the company’s output of new iPhone displays had fallen behind schedule. Thus the supply curve of Apple products would be as follows: Supply curve of Apple Iphone in the short run
2. Increase in demand coupled with supply constraints
The early total for the iPhone 5 topped sales of the iPhone 4S, which sold more than 4 million units in its first weekend after Apple introduced it in October 2011. The numbers do not include units that have yet to be shipped or delivered to customers as Apple books sales only when online customers sign for the purchase. “We are not overly concerned with this ‘disappointing’ number as we believe this is a classic case of near-term expectations getting out of touch with reality,” Sterne Agee analyst Shaw Wu said. He added that he expects Apple to sell a total of 27 million iPhones in the September quarter and 46.5 million units in the December quarter.
The iPhone 5 has been one of Apple’s most aggressive international rollouts to date. The phone will be available 31 countries on September 28 and in more than 100 countries by the end of the year.
“Expectations for Apple are always white hot,” said Colin Gillis, a research analyst with BGC. “It’s not just enough for them to break records but to smash them.”
Thus given the inelastic supply curve and increasing expectation of consumers the demand curve of apple would shift rightwards but given the supply constraints in short run the supply curve remains the same and quantity supplied does not increase as a result .
Increase in demand curve and supply constraint of apple iphone.
3. Samsung looks to pinch Apple suppliers due to Galaxy S4 demand KOREAN PHONE MAKER Samsung apparently is attacking on another front in its ongoing battle against Apple, with reports claiming that it is trying to steal its rival’s parts suppliers. While Samsung does a lot of its manufacturing in-house, Reuters reports that the company is looking for new suppliers due the growing demand for its Galaxy smart phones, in particular the Galaxy S4. However, the Korean giant apparently is looking to lure away Apple’s suppliers, sparking talk of another battle between the two Smartphone companies. If this is true, it could make life a bit difficult for Apple, which reportedly has signed up new manufacturers recently to work on a cut-price iPhone model.
It could drive up costs for the American gadget designer and could cause the firm to suffer shortages of critical iPhone parts. However, it looks like the battle might have already been joined. Samsung bought a three percent stake in Sharp earlier this year, which said this week that it is looking to boost sales, potentially harming its relationship with Apple. “The next round of the post-patent battle for them will be over component supplies,” said Lee Sun-tae, an analyst at NH Investment & Securities. “Who wins access to the best performing components in class in large quantity – that’s the key… and explains why Samsung is shopping for components more than ever.” This looming conflict follows on the heels of Apple’s and Samsung’s ongoing patent war in the courts. Most recently, Apple requested a court’s permission to add the Samsung Galaxy S4 to its upcoming patent lawsuit, claiming that the handset infringes iOS design patents.
Thus if the claims turn out to be true as a result of which the the supply of iphones may reduce and it may lead to decline in their profits since the demand of product is there but supply constraints may force the consumers to shift to substitutes. The diagram can be shown as :
Increase in demand and corresponding decrease in supply curve.
4.Report: Competition from rival Samsung
Apple reportedly is scaling back component orders for the iPhone 5 after demand for its latest Smartphone started to taper off in the fourth quarter. According to a report Monday from The Wall Street Journal, Apple has slashed first-quarter orders for iPhone 5 screens by nearly half, while also scaling back orders for other components found in the Smartphone. The Cupertino, Calif.-based company warned suppliers of the cuts starting last month, the Journal said, citing “people familiar with the situation.” Apple stock fell more than 3 percent when the market opened Monday morning, falling below $500 for the first time in almost a year. The company did not immediately respond to a request for comment. Sanford Bernstein analyst Alberto Moel told the Journal that Apple was likely forced to cut iPhone 5 component orders after placing especially large orders for the fourth quarter, leaving the company with excess inventory.
Meanwhile, Apple has faced increased competition in the Smartphone market from rival Samsung over the past few months. Gartner that Samsung solidified its position as the world’s largest Smartphone maker, selling 55 million smart phones during the third quarter and nabbing an industry-leading 32.5 percent market share. As result of this move the we can infer that demand for Samsung phones have increased and it has also been able to increase supply due to proper supply operations. Thus the demand curve would shift rightward and supply curve would also shift rightward for Samsung phones. Increase in demand and corresponding increase in supply of Samsung smartphones.
Elasticity of Demand
Besides the iphone, there are other, cheaper mp3 players on the market. However, the iphone and Apple brand are clearly the most popular, and many would say that there is no substitute for an iphone. At $250, the iphone is relatively expensive, especially for its target demographic—teenagers. An increase or decrease in price would certainly affect the demand among teenagers. Iphones are considered luxuries, not necessities, because anyone can survive without having an iphone. Also, if there is a price change, there is time to adjust to the change because people can wait to buy an iphone. Overall, the demand for iphones is elastic.
New Ad Campaign Boosts
i-Popularity The latest advertisements for iphone, featuring pop star Gwen Stefani, have created a much higher demand for the product. Studies have shown that the advertising campaign has been successful with consumers in their teenage years and adults in their 20s and 30s, and for both males and females. The rising demand for the latest iphone has caused a temporary shortage of the product, forcing Apple iphone users to enter black market and pay higher prices. Increase in demand of iphones.
New Computer Chip Helps iphone Lower Cost
A technological breakthrough has given Apple the capability supplying more iphones. This new computer chip will make it much easier and cheaper to produce the iphone. The reduced production costs mean that Apple has made many more iphones available in stores. However, the demand for iphones has not kept up with the supply, so Apple reduced the price of the iphone to $249 to eliminate the surplus.
Increase in supply of iphone .