The demand of a product is determined by the amount of a good or service that a consumer is willing and able to purchase at any given price (Hubbard, 2010, pg 62). The I phone 5 provides a top of the range product which allows consumers to call, text, email, play games etc, however this comes at high end price of $799.When purchasing the IPhone 5 a rational consumer will way up the cost and benefits to him or her of each additional unit. This may lead to a consumer choosing a device which serves the basic needs of communication at a much lower cost
Figure 1: Law of Demand
PRICE 1000 800
5 10 15 20 25 Quantity (000)’S
As you can see in figure 1 the higher the price of the good, the smaller is the quantity demanded. This is also known as the law of demand.
Any movement along the demand curve is caused by a change in price. For example if the price was to be lowered demand would increase shown through an upwards movement on the demand curve as shown in figure 2. A change of price from $800 to $400
Figure 2 : Movement in the curve
Non price factors cause a shift in the demand curve, these factors include the price of related goods(substitute and complement), population, consumer preferences and expected future prices.
Figure 3 : Shift in Demand curve
D1 : For example if the price of the substitute such as Samsung galaxies, Nokia or any other smart phone increases, a shift to the right of the demand curve will occur as the demand this would cause the demand for to phone 5s to decrease and therefore shift to the right.
D2 : For example if the population in Sydney decreased the demand for phone 5s in Sydney would decrease causing a shift to the left.
The quantity supplied of a good or service is the amount that procedures plan during a given time period at a particular price.(wright,2012pg 3). A firm is able of providing a good or service if the firm has the resources and technology to produce it, has made a definite plan to produce it and sell it and can profit from producing it.
Figure 4 : Law of supply
As you can see in figure 4, the higher the price of the good, the greater is the quantity supplied. This also known as the law of supply. A non price factor is any variable other than the price itself that affects the demand of a product.(Wright,2013,pg4)
Figure 5 : shift in demand
As seen in figure 5(S1)The price of steel has increased, making it more expensive to produce phone 5s and therefore decreasing supply. This causes a shift to the left.
In supply curve 2 Apple has developed new technology to produce a harder glass surface, this has caused a increase in supply hence shifting the supply curve to the right.
"Equilibrium in a market occurs when the price balances the plans of the buyers and sellers"(Point 1). "Equilibrium price is the price at which equals quantity supplied"(Points 2). "Equilibrium quantity is the quantity bought and sold the equilibrium price"(Wright, 2012, pg 24)
Figure 6 : Market equilibrium
Price elasticity of demand is the reaction of the quantity demanded to a change in price, measured by dividing the percentage change in quantity demanded of a product by the percentage change in the price. Through a few key determinants we can see why price elasticity differs between various