Management Economics Assessment 1 - Describing Apple's Business and Identifying Demand and Market Equilibrium for iPhone

This assessment analyzes Apple's business and identifies demand and market equilibrium for iPhone. It also indicates whether demand for the company's product is more inelastic or elastic. The pricing strategies that Apple can use are also discussed.

Management Economics
assessment 1

Contents
Contents...........................................................................................................................................2
INTRODUCTION...........................................................................................................................1
MAIN BODY..................................................................................................................................1
Describing the business...............................................................................................................1
Identification of demand as well as market equilibrium.............................................................2
Indicating whether demand is more elastic or more inelastic......................................................6
CONCLUSION................................................................................................................................8
REFERENCES................................................................................................................................9

INTRODUCTION
Managerial economics is used by enterprises to primarily solve problem or issues and devise
decisions through application of principles, models and concepts related to economics. It deals
with internal complexities through usage of ample number of theories (Anyushenkova, 2017).
All business forecasting, investments along with assumptions are derived from managerial
economics. It also helps decision makers of enterprise to assess priorities and goals, existing role
and requirements for fill the void. For the project, chosen brand is Apple which is multinational
technology establishment specialised in computer software, online services addition to consumer
electronics. It is most valuable organisation and largest information technology business by
revenue.
The project highlights information about the business. It also includes identification of
demand together with market equilibrium. At last, it indicates whether demand of the company’s
product is more inelastic or elastic.
MAIN BODY
Describing the business
Historical information of company
On April 1, 1976, Steve Wozniak, Ronald Wayne as well as Steve jobs established a
business that is Apple with the mission of bringing best personal computing commodities along
with support people including scientists, students, business persons and many more around the
globe. It is user friendly organisation that started by making computers small enough for
population to have at homes and offices. The first product of the company is Apple I which was
a computer designed along with hand built entirely by Wozniak. Apple I was sold as
motherboard with RAM, CPU as well as other basic textual video chips. In 1977, Apple II was
invented and further in 1980, Apple III was introduced in market. By 2000s, it was leading
computer manufacture in US in which the company recorded sales of around 7 million in the
period. As of now, the company works with employee size of approximate 154000 and revenue
of US $ 274.515 billion.
Products or services of enterprise
Apple is a large technology organisation which sells variant of computer accessories.
Some of its products with sales worldwide are as follows:
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Figure 1: Sales of Apple Products Worldwide. 2021
(Source: Sales of Apple Products Worldwide. 2021)
The graph shows product sales of Apple worldwide by year, starting from 2007 to 20021.
Major products of the company are iPad, MacBooks, iPhone and iPod. In the year 2021, sales of
iPhone include 145.3 million units, iPad is 31.7 million units, Mac is 14.04 million units and
iPod is 0 million units (Sales of Apple Products Worldwide, 2021).
Selection of product
iPhone is one of commodity of Apple that was released in 2007. The product is selected
for the analysis as it is more popular among types of consumers of the company (Ketokivi and
Mahoney, 2017). It has functionality of mobile phone, game console, portable media player
addition to handheld computer in individual device. It is most popular addition to bestselling
product across the globe. With Apple, there are around 33 iterations of iPhone such as iPhone,
iPhone 3Gs, iPhone5, iPhone 5s, iPhone 5c, iPhone 6, iPhone 6 plus, iPhone 7, iPhone7 plus,
iPhone 8, iPhone 8 plus, iPhone X, iPhone XS, iPhone 11, iPhone 13 and many more.
Identification of demand as well as market equilibrium
Demand is refereed to an economic principle that elaborates desire of consumer for buying
a good or service and willing to pay an amount for particular good or service. Analysis of
demand act as basis to devise decision of pricing of a company (Bogdanović, Vetráková and
Filip, 2018). In case, if demand for an item is high, an organisation can charge high price by
keeping other things same. However, if demand for a product is low, it is not possible for an
establishment to charge high price. It helps the establishment in profit budgeting. Similarly,
market equilibrium is defined to a situation in which supply and demand of particular product are
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equal. In this, there are no tendency for implementing changes in pricing system. It states that
price at which quantity demanded is equal to quantity supplied. By analysing demand and market
equilibrium, marketers of Apple analyse effects of factors on volume of sales of product. It
assists in reducing risks along with framing better financial decisions which enhances
improvement in resource allocation, cash flows, margins of profit and wider growth
opportunities. Since the launch of iPhone, it is evident that demand of the Apple’s product has
been increasing. There is fear that latter might overlap the product supply. There are certain kind
of factors which influence demand and affect product of company. In context to iPhone of
Apple, mentioned below are factors influencing and indicating increase or decrease of demand:
Price of substitutes: Substitute product is termed to a commodity could be easily replaced
with other by consumers (Li, Han and Gu, 2018). In a market, products are often substituted if
demand of an item increases when prices of another rises. In aspect to iPhone, there are various
alternative products available to consumers. Some of substitute products of iPhone of Apple are
all Android Phones including Oneplus 8 Pro, Nokia 8.3 5G, Samsung Galaxy S21, DOOGEE
S96 Pro and many more. All these impacts sales of iPhone series and demand of the commodity.
At present, price of iPhone is decreasing as its substitutes provides similar feature that meets
satisfaction of customer needs for smartphone. It impacts widely on demand of iPhone as
Android and iPhone offer similar functionality addition to form. For example, when prices of
Android Phones fall, consumers demand more resulting to movement along demand curve.
Price of complements: Products or services which adds values to other to meet particular
need are complements. In a market, when two commodities are complements, change in demand
of one is accompanied by change in quantity demanded of other. In aspect to iPhone, there are
certain accessories that are recognised as compliments such as fast wireless charging pad,
survivor clear case and Anker 3A portable power bank. Complements have joint demand as well
as permits interaction as consumers crave for second product at the time when there is
fluctuation in prices of first product (Mitea, 2018). In aspect to iPhone, increase in price of
compliment products will least impact sales volume and demand of main product as it is not
necessary that all of these could be purchased by consumers with iPhone.
Consumer Income: It can be described to money with a consumer that is earned from
working or investment. While planning sales volume of products, business managers are required
to emphasis on consumer income as consumption of product enhances when income of consumer
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increases. Slight shift in consumer income has great possibilities to leave unfavourable impact on
product sales. At present, consumer income is increasing because of huge development of
infrastructure across the world.
Figure 2 Consumer spending on iPhone. 2021
(Source: Consumer spending on iPhone. 2021)
As per the presented graph, it can be said that trend of enhanced spending of consumers
in iPhone have increased by 38% in 2020 from 27% in 2019 (Consumer spending on iPhone,
2021). It leaves positive impacts on demand as well as supply of iphone as when it it decreases,
consumers will not buy it due to its high price. Increased consumer income leads to increment in
demand of iPhone because of direct relation among the two factors.
Consumer tastes & preferences: An item or service for which taste and preferences of
consumers are more, demand is large resulting to demand curve at higher level. At the time of
manufacturing a product, considering consumer taste and preferences assist in completing
process to match preferences and taste leading to higher profits (Ahluwalia, Mahto and Guerrero,
2020). In aspect to iPhone, consumer prefer buying the product as it enable them to take benefit
of online music, made of high quality materials and offers huge communication options.
Moreover, consumers are changing their preferences for products frequently because of huge
innovation advancement comprising of wireless charging, strong screens and hence forth. All
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these changes impacts demand of iPhone series as the company fails to satisfy expectations of
clients and customers. Ongoing changes in taste and preferences do not impact adversely on
demand addition to prices of Apple product that is iPhone. It is because Apple focuses more on
latest innovations with market and accordingly offer its products.
Demographics: Demand for product is obtained through adding up demands of potential
and prospective buyers of product at different possible prices (Kot, Goldbach and Ślusarczyk,
2018). When there are more consumers of a commodity, there is greater market demand of
specific product.
Figure 3 iPhone users. 2021
(Source: iPhone users, 2021)
From the statistics, it can be said that total number of users of iPhone are increasing each
year. There are approximately 1 Billion users of people that uses iPhone worldwide (iPhone
users, 2021). Over 50 million of iPhones were shipped in third quarter of the year 2021. The
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increasing sales shows that users of iPhone are increasing continuously. The high demand and
sales shows that company is making huge profits.
Consumer expectations of price: Consumers expectation about prices of commodity in
future also influences demand for products (Hernández-Nicolás, Martín-Ugedo and Mínguez-
Vera, 2018). All customers have distinct prospects or expectation about product prices and it is
significant for all business concerns to analyse expectations so to set process for sales
accordingly. In association to iPhone, all customers expect that in future prices of iPhone series
should be decreased so that they are easily purchased by them. Expectations of consumers for
product price impacts demand as when high prices are established by company then it becomes
difficult for them to make purchase. Managers of Apple are making attempts to match level of
expectation of target audiences, however, high quality addition to production costs restricts the
venture to set expected prices for iPhones.
Indicating whether demand is more elastic or more inelastic
Price elasticity of demand can be delineated to a measurement of change in product
consumption in context to change in prices of it. In Apple, managers use price elasticity for
understanding the ways in which supply and demand for iPhone changes when there are changes
in its prices. Inelastic price is static quantity of product when there are changes in its prices. It
means, when prices go up, buying habits of consumers stay about same as well as when prices
decreases, purchase habits remain unchanged. However, elastic price is said to change in buyer’s
behaviour responding change in price for commodity (Calvo-Mendieta, Petit and Vivien, 2017).
It is analysed that demand for iPhone of Apple is more price inelastic as even when there is rise
in price of iPhone series, people or consumers so not switch to other brands. Changes in prices of
the product have least impact on its demand and sales volume as shoppers still line up at stores
for some launch of new Apple product. The demand for iPhone series is always high in market
due to requests of consumers. Although prices of the item are high, still, the company cannot
supply enough for all.
Substitution effects: It is decline in sale of product which can be attributed to consumers
switching for cheaper options or alternative at the time of price rise. As per customer viewpoints,
it can be said that iPhoen of Apple are luxury product because of its high prices. Brand,
longevity and quality are some factors that define luxury status of iPhone. For showing higher
standard level, the product is purchased by certain middle class income group and high class
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income group. Slight rise in price of the product have least effect on its sales that shows that
product is more inelastic because of change in prices do not impacts on volume of sales.
Income effects: It is defined to change in consumption of products or service as per
income. It states that consumers spend more when experiencing enhancement in income as well
as they spend less when their income drops. iPhone of Apple is purchased by consumers having
larger portion of income due to its high prices. It indicates that demand for the product is more
elastic, it is because when there is minor decline in level on consumer income they make changes
in their buying patterns for product due to high cost or prices.
Pricing strategy is a method used to estimate value of goods or services. A pricing
strategy consist of ability to pay, accounts segments, market conditions, input cost as well as
trade margins. In context to Apple, pricing strategies that company can use are as below:
 Premium Pricing: In this pricing strategy, products prices are set high by providing
premium products to its customers. Businesses create products with high quality to attract
high income audience at high rates. This strategy works with those companies who shares
a strong existence as well as reputation in market. If Apple uses this strategy for pricing
iPhone it can gain more profits by attracting high class customers.
 Competition based: This pricing strategy determines price of a product by analysing price
of its competitors in the market along with quality offered by them. Here companies
lowers its price from its competitors price to attract more audience. Apple can use this
strategy by analysing prices of its competitors like Sony, Lenovo, Asus etc. and lowering
price of its product to attract more customers.
 Price Skimming: This strategy focuses on setting high price in initial stage and then
lowering its price to compete its competitors. This strategy is ideal for entities stepping
into an emerging market (Ronghui, 2017). This strategy is used as increasing price of a
newly launched product in an emerging market to attract more profits and then lowers its
price as per the competition level. Apple can use this strategy to gain more profits in its
initial stage till the time it attracts competitors in market.
From the above discussed strategy, Apple should adopt Premium pricing strategy for iPhone
as it comes with latest technology with an adorable look as well as water resistance techniques.
Company can have less customers but can attract high income customers by providing them
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premium mobile phone with high build technology. High income customers looks for products
which can boost their status in society.
CONCLUSION
From the presented information, it is concluded that managerial economics aid business
managers in forecasting factors including profit, demand, price, cost and production. When
organisational managers function in uncertain environment, it is imperative for them to forecast
future environment working in context to said quantities. Major factors that indicate increase or
decrease of product demand are consumer expectation about prices, prices of substitutes,
demographics, consumer income and many more. Pricing policy states the ways in which a
business establish product prices as per cost, demand, competition and value. Premium pricing
policy should be employed by a company as using this, managers can set higher price for the
product in aim of giving impression of product is of higher quality.
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REFERENCES
Books and Journals:
Ahluwalia, S., Mahto, R. V. and Guerrero, M., 2020. Blockchain technology and startup
financing: A transaction cost economics perspective. Technological Forecasting and
Social Change. 151. p.119854.
Anyushenkova, O. N., 2017. Economics and quality management in small businesses.
In Актуальные вопросы права, экономики и управления (pp. 170-172).
Bogdanović, M., Vetráková, M. and Filip, S., 2018. Dark triad characteristics between
economics & business students in Croatia & Slovakia: what can be expected from the
future employees?. Entrepreneurship and Sustainability Issues. 5(4). pp.967-991.
Calvo-Mendieta, I., Petit, O. and Vivien, F. D., 2017. Common patrimony: a concept to analyze
collective natural resource management. The case of water management in
France. Ecological Economics. 137. pp.126-132.
Hernández-Nicolás, C. M., Martín-Ugedo, J. F. and Mínguez-Vera, A., 2018. Women mayors
and management of Spanish councils: An empirical analysis. Feminist
Economics. 24(1). pp.168-191.
Ketokivi, M. and Mahoney, J. T., 2017. Transaction cost economics as a theory of the firm,
management, and governance. In Oxford Research Encyclopedia of Business and
Management.
Kot, S., Goldbach, I. R. and Ślusarczyk, B., 2018. Supply chain management in SMEs-Polish
and Romanian approach. Economics & Sociology. 11(4). p.142.
Li, Z., Han, C. and Gu, T., 2018. Economics of biomass gasification: A review of the current
status. Energy Sources, Part B: Economics, Planning, and Policy. 13(2). pp.137-140.
Mitea, D. R. E., 2018. The expansion of digitally mediated labor: Platform-based economy,
technology-driven shifts in employment, and the novel modes of service work. Journal
of Self-Governance and Management Economics. 6(4). pp.7-13.
Ronghui, X. I. E., 2017. Environmental regulation, induced innovation, and growth of green
productivity in China. Industrial Economics Research, p.02.
Online:
Consumer spending on iPhone. 2021. [Online]. Available through;
https://techcrunch.com/2021/04/01/u-s-iphone-users-spent-average-of-138-on-apps-in-
2020-to-grow-to-180-in-2021/
iPhone users. 2021. [Online]. Available through; < https://backlinko.com/iphone-users>
Sales of Apple Products Worldwide. 2021. [Online]. Available through: <
https://dazeinfo.com/2019/09/25/apple-products-sales-worldwide-by-year-graphfarm/>
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