UNIVERSITY OF PHOENIX
Professor Philip Gibbs
April 30, 2015
Market Equilibration - Apple IPhone
Market equilibrium is best described as the state of economic activities in which all consumers are satisfied. It is important for businesses to identify changes within the market to ensure increased efficiencies to maintain competitive advantage in an aggressive global economy. This essay addresses the commodity of the Apple IPhone and the variances within supply and demand dependent upon events leading to the movement between the two equilibrium states.
Forces of Consumer Demand
It is important to understand the forces of demand and supply which are invisible in the market in order to comprehend market functions. In simplified terms, demand is the willingness and capability of an individual or group to purchase a commodity offered in the marketplace. There are however factors that determine the level of demand, including the price that the product is being offered for that commodity. This is in direct correlation to the Law of Demand in which all considerations equal “as price falls, the quantity demanded rises, and as price rises, the quantity demanded falls” (McConnell, Brue, and Flynn, 2009, p. 45). To clarify, individuals will want to buy a product that is cheap but when the price is increased, will avoid purchase. Therefore an increase in price will lead to a decrease in the amount of a commodity that is demanded.
As displayed in Figure 1, the diagram reflects how demand performs when the price for Apple’s IPhone 5 changes. Assuming that the original price is P1 and original demand Q1, there is an equilibrium at Eq. At the equilibrium point, the forces of demand and supply are equal. However, when the price is increased to P2, assuming other factors are constant, the buyer will not have the same willingness to purchase the IPhone 5. Therefore the demand moves to Q2.
Another factor affecting demand is the price for related goods; this includes previous versions of the IPhone such as the IPhone 3 and IPhone 4. When the price for related goods decreases, the market will reflect a preference in purchase. Hence, the reaction will be similar to that of a rise in price for that good (McConnell et al, 2009).
Tastes and preferences of the consumer also play a role in market demand as he or she will increase purchase dependent upon discriminations. If consumers prefer android phones, then the demand for IPhone will be affected.
The last factor analyzed is consumer expectations. Loyal consumers of the Apple products are willing to purchase the commodity if expectations of a price increase arise. An example of this behavior could be yet another new release of the IPhone in the future. The individual might prefer to wait until the new release, therefore causing a decline in demand of the current product.
Forces of Consumer Supply
Supply refers to the amount of a commodity that suppliers are willing to provide to the market at a given price assuming that all other factors are constant. The relationship that is displayed between price and quantity supplied is referred to as the Law of Supply which states “as the price rises, the quantity supplied rises; as price falls, the quantity supplied falls” (McConnell et al, 2009, p. 51). In relation to demand, there are also factors affecting supply. Referring back to Figure 1, the supply curve is referenced as So. If the price is P1, the amount supplied will be Q1. However, when the price is increased to P2, the price supplied will increase at Q3. Results are reflective of elevated profitability per unit because of the increase in price. Businesses providing commodity would want to take advantage of this new situation to increase cash intake, hence the higher supply offered in the market. Other factors affecting supply include prices of related goods,