Business Economics: Price Elasticity of Demand, Apple's Re-branding Strategy

Business
Economics

Table of Contents
INTRODUCTION...........................................................................................................................3
PART A – MICROECONOMICS...................................................................................................3
1. Price Elasticity of Demand:.....................................................................................................3
2. Main determinants of the price elasticity of demand for the Apple iPhone:...........................3
3. Apple benefit in terms of revenue from reducing prices:........................................................4
4. Perfect market competition-model:..........................................................................................5
5. Apple’s re-branding strategy:..................................................................................................5
PART B – MICROECONOMICS...................................................................................................6
6. ..................................................................................................................................................6
7....................................................................................................................................................7
8....................................................................................................................................................7
9....................................................................................................................................................7
PART C – MACROECONOMICS.................................................................................................8
10..................................................................................................................................................8
10. (a):..........................................................................................................................................9
10. (b):........................................................................................................................................10
10. (c).........................................................................................................................................10
10. (d):........................................................................................................................................11
CONCLUSION..............................................................................................................................11
REFERENCES..............................................................................................................................12

INTRODUCTION
Business economics is specific area of economics that uses economic principles and
numerical techniques to examine enterprises and variables that contribute to the heterogeneity of
corporate structures including business connections with employees, capital and consumer
markets. Business economics is important component of mainstream economics and this is an
enhancement of actual business conditions of economic theories (Biondi and Zambon, 2013). It
is a computational mathematics in the context of business's decision-making method and
management future forecasting. This study covers various aspects of macroeconomic and
microeconomic like price-elasticity of demand, supply and demand etc.
PART A – MICROECONOMICS
1. Price Elasticity of Demand:
Price elasticity of demand refers to economical measurement of fluctuations in product's
demand or purchase with relation to fluctuation in product's price. In formula equation it is
shown as:
Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price
Economists utilize price-elasticity to explain how supplies or demands changes due to price
fluctuations to recognize real economy performance. If product's requested quantity experiences
a substantial shift in reaction to price movements, it is called "elastic," i.e. quantity extended far
beyond its preceding level. If bought quantity has a slight shift in reaction to its value, it is called
"inelastic;" or quantities has not extended dramatically from its preceding level. The principle of
demand elasticity is very important in deciding prices of different production variables.
Production variables are compensated as per demand elasticity. if a determinant's demand is
inelastic, its value will be strong as well as its price would be lower when it is elastic. Once a
distributor or supplier recognizes the Market Elasticity of Demand for their product, when they
have to adjust price of product, this can enable them assess their increase in Net revenue. Overall
revenue is number of items that are purchased multiplied by the price at which they are sold.
2. Main determinants of the price elasticity of demand for the Apple iPhone:
Relationships between price and demand of a product depends on different factors. These
factors impacts product's demand directly and indirectly. Consideration of these factors is crucial
to determine the overall impact on price's elasticity of product's demand. Their impacts on

demand may be major or minor as per company's brand value, position in industry, customer
group and nature of business. As Apple also has several factors which are playing key role in
curve of price-elasticity of demand. Following are three main determinant's of Apple iPhones'
price elasticity of demand, as follows:
Demand of Substitute Products:
The most significant variable affecting the demand elasticity is availability of alternatives
or substitute products. The higher substitutes leads to more flexible market generally. Currently
apple has several substitute products like one plus's smartphone, Samsung smartphone etc.
Company's products are facing heavy competition in market due to these substitute products.
However due to unique band image Apple's products are no so much affected by this factor but
this factor forced company to bring changes in products and these substitutes attracts price
sensitive customers.
Share of non-price sensitive customer in market:
Another determinant is proportion of non-price sensitive customers in any market as
most of iPhone's customers belong to this category. These are customers who are ready to pay
any price for company's premium product range. This customer group wants quality products
with unique features. Company product are generally designed while focusing on this customer
group and well known brand at international level. Company always creates records of sales on
first day of launching of iPhones. Company's demand is highly depends upon this customer
group as they are also company's loyal customers.
Time and Change in customer's preferences:
This crucial determinant which can affect price-elasticity of demand because with change
in customer's preferences they may shift to another product which ultimately impact product's
demand. Time taken by customers to change their preferences is significant determinant which
determines Apple's product sales during a specific period. Company also spends lot of money
towards research and survey of changes in customers' preferences so that company can launch
products accordingly.
3. Apple benefit in terms of revenue from reducing prices:
Case 1: iPhone 11Price: $700 than sales goes to 10 million units.
Case 2: iPhone 11Price changed to: $525 then sales goes to 14 million units.
Price Elasticity of Demand = Change (%) in Quantity Demanded / Change (%) in Price