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Essay on Demand and Market Equilibrium for Apple's iPhone 8 Plus

Updated on March 6, 2018

Introduction

iPhone 8 plus represents a significant step forward for the Apple company, and specifically for the iPhone product. The product was launched on September 12th 2017 with the aim of improving customer experience (Financial Times, 2017). Besides, the features of this generation of iPhone (iPhone 8 plus) impact on its demand and market equilibrium. The essay delves on price elasticity of supply or demand, non-price factors that affect supply and demand, market equilibrium, as well as forecast in supply and demand for the product.

a. Price Elasticity of Demand

The demand curve for iPhone 8 plus depicts inelasticity since Apple provides reasons through the product that render its market appreciation. An implication of this is that the pricing power of the product rests with company and not with the customers (Chen, 2017). With comparison to its competitors such as Sony, LG and Samsung, the demand for iPhone 8 plus is most inelastic. Essentially, demand for the product is not completely inelastic, but rather quite inelastic when compared to its competitors.
As illustrated on figure 1 below, it is evident that the demand for Apple’s iPhone 8 plus is nearly similar to an essential good or service that people cannot live without. The price elasticity for the product tends to incline more vertically, which explains the foregoing insight. The more vertical inclination is also showcased by the difference in the distances between Q1 and Q2 vs P1 and P2. Reasons attributed to this price elasticity of demand for iPhone 8 plus are worldwide distribution and reach of the product, fascinating product design, and exemplary customer service provided by the company (Chen, 2017). As such, big changes in prices for iPhone 8 plus elicit insignificant effect on demand.

Figure 1: Price Elasticity of Demand for iPhone 8 plus.

b. Non-price Factors Affecting Demand of Apple iPhone 8 Plus

Population as well as tastes and preferences are examples of non-price aspects that have an effect on the demand of iPhone 8 plus. Population, in this regard means the number of willing buyers in the market as opposed to the count of people residing in a certain locality. A decrease in the number of buyers in a market targeted by iPhone 8 plus translates to a reduction in demand for the product. One week after the release of the product, the Apple’s shares dropped by 1.5%, consequently resulting in over 5.2% loss (Financial Times, 2017). Though the demand has stabilized overtime, there still exists the possibility of reduction in demand. This will happen in case the target populations or market shy off from purchasing the product due to an increase in price. On the flip side, companies offering related products are determined to attract Apple’s customers by innovating better features for their devices affordably. Due to this, some of the clients may choose other products such as Android phones due to attractive features provided on a more affordable device.

c. Impact of Government Policies and Labor Costs on the Supply of iPhone 8 Plus

Government policies and labor costs are examples of non-price elements that impact on the supply of iPhone 8 plus. Apple distributes its products to various nations globally and as such, it faces varying government policies. Such include industrial and fiscal policies, which pose enormous impact on the supply of any product (Benkovskis & Wörz, 2016). Some countries increase tax on excise duty, an aspect that compels Apple to cut the supply of iPhone 8 plus. On the other hand, countries that charge a fair tax rate motivate the supply of the product. Due to the fact that Apple affiliates with many partners who manufacturer the products in other countries, it is subject to variations in labor costs. The company do not have any control over such changes, thereby, making it difficult to avail iPhone 8 plus to the market at a reasonable price.

d. Industry and Market Equilibrium Related to iPhone 8 Plus

In regards to industry equilibrium, Apple is increasingly contesting against other products from rival companies. The introduction of iPhone 8 plus puts Apple at the top since the product is an upgrade to previous iPhone versions. Samsung, for instance, is Apple’s biggest competitor in the industry (Benkovskis & Wörz, 2016). In order to outsmart Samsung even more, Apple contemplates on launching an advanced version of iPhone 8 plus.
Prices of brands of alternative products affect the market equilibrium of Apple iPhone 8 plus. When quantity supply is surpassed by quantity demand, a shortage in supply of the product ascends (Correa et al., 2014). In order to increase equilibrium in this case, Apple must find ways such as product promotion to increase purchase of iPhone 8 plus.

e. Prediction of the Effect of Changes in Supply and Demand on Market Equilibrium

An increase in the supply of Apple iPhone 8 plus will cause a rise in the market equilibrium; this is due to the hike in the equilibrium quantity of the product. If Apple decides to deliver more iPhone 8 plus into the market thus, creating a surplus in supply, the excess products will have the effect of increasing the quantity demanded due to fall in price (Correa et al., 2014). This will consequently raise the market equilibrium. The opposite is true where there is a reduction in supply and demand.
The figure below illustrates the explanation above.

Figure 2: Changes in demand on Equilibrium Market.

f. Decisions Following Changes in Supply and Demand on Market Equilibrium

Where there’s a shift in the market equilibrium, Apple should consider establishing a new supply-demand equilibrium for iPhone 8 plus. The rationale behind this is that a market equilibrium is achieved when the amount supplied and that demanded are equal. Adjusting the price of the product is another option Apple must embrace until supply equals demand when the need arises.

References

Benkovskis, K., & Wörz, J. (2016). Non-price competitiveness of exports from emerging
countries. Empirical Economics, 51(2), 707-735. http://dx.doi.org/10.1007/s00181-015-1015-y
Chen, X. (2017). Elasticity as relative slopes: A graphical approach to linking the concepts of
elasticity and slope. American Economist, 62(2), 258-267. http://dx.doi.org/10.1177/0569434516682713
Correa, J. R., Figueroa, N., Lederman, R., & Stier-moses, N. (2014). Pricing with markups in
industries with increasing marginal costs. Mathematical Programming, 146(1-2), 143-184. http://dx.doi.org/10.1007/s10107-013-0682-8
Financial Times (2017). Apple faces doubts over demand for iPhone 8. Retrieved from
https://www.ft.com/content/17d9b020-9f0b-11e7-8cd4-932067fbf946

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