Thursday 1 November 2012

Lack Supply Of Apple iPhone 5



My second case study is about the Apple iPhone 5 Supply Comes Up Short. This means Apple faces shortage in supplying their items. According to the article. Over exessive demands of the iPhone 5, Apple faces shortage. The current statistics indicate that the company is already facing shortfalls for the new iPhone 5, as demand continues to garner momentum. We recently saw one of the measures that Apple Inc. took, following the skyrocketing demand for the new iPhone 5. The company sought to postpone some deliveries to various countries, in a bid to deal with short-term shortfalls. While this was the most viable option at the time, it cannot be applied for the future, larger demand. This is why the company must ensure that the two major semiconductor components are available adequately. Apple Inc. stands at the middle of two constraints, shortage in supply of key device components, and an overwhelming demand for the device.
The factors that affect the demand of the iPhone 5 may be because of the taste and preferences of consumers. This is a less tangible item that still can have a big impact on demand. There are all kinds of things that can change one's tastes or preferences that cause people to want to buy more or less of a product. For example, clearly the iPhone 5 is now a trend where almost everyone is using. It is the most used smartphone in the world. Therefore, people would want to buy the iPhone because of the trend that is going on. On the other hand, the interesting applications and amazing software that they offer in this iPhone attracts the people to buy it. Furthermore, the consumers income is a factor in the demand of this item. As we can see, even though the price of an iPhone is quite expensive compared to other smartphones, people would still want to buy it because of certain reasons such as the performnce of the phone. With the price of the phone quite high, consumers still buy it expecially when their income is higher. Mostly consumrs with higher incomes would buy the iPhone as they can afford it. Hence, the income of a consumer is important in the factors of demand. The next factor is consumer’s expectation. it doesn't just matter what is currently going on - one's expectations for the future can also affect how much of a product one is willing and able to buy. For example, if you hear that Apple will soon introduce a new iPhone 5 that has more memory and longer battery life, consumers may decide to wait to buy an iPhone 5 until the new product comes out. When people decide to wait, they are decreasing the current demand for iPhones because of what they expect to happen in the future.
The factors of supply of the iPhone 5 may be the price of inputs. In addition to the price of the product being the main factor as stated  in the Law of Supply, the price of production inputs also plays a part. The lowest price at which a firm can sell a good without losing money is the amount of money that it costs to produce it. Producing a good or service involves taking inputs and applying a process to them to produce an output. The output is the finished good or service, and inputs are raw materials, labor, utilities, liscensing fees, or even other goods. These inputs are also known as factors of production. If the price of inputs goes up, the cost of producing the good increases. And therefore at each price producers need to sell their good for more money. So an increase in the price of inputs leads to a decrease in supply. Simarly, a decrease in the price of inputs leads to an increase in supply. Other than that, the current state of a production technology. Production of a good involves taking inputs, applying a process to them, and producing an output. Well, production technology is involved in the process part. Increases in the level of production technology can make that process more efficient.
To study the interaction of buyers and sellers in a market, economists put the demand curve and supply curve onto the same graph.


People now craving for smartphones. Most of the people now own a smartphone. 

For example, the demand and supply of Iphones (per week) at different selling prices:



What would happen if suppliers decide to sell the Iphones at $2400?

At the price of $2400, suppliers have produced 12000 units of Iphone but buyers are only willing to buy 2000 units and the expensive price tag discourages them.
In this instance, there is an oversupply of Iphones by 10000 units (12000 – 2000). To get rid of the oversupply, suppliers have to reduce the price of Iphones to entice buyers. So if they were to reduce the price down to $2000, the number of Iphones demanded would increase to 4000.

The reduction of the price to $2000 would also reduce the incentives (profit) for the suppliers, thus reducing the total units supplied to 9000. However, there is still an oversupply of 5000 units at this price level (9000 – 4000).

The remaining oversupply would prompt suppliers to further cut down the price.
At $1600, demands become even stronger i.e. 6000 units. And conversely, it further reduces the incentives of suppliers and thus cut down their production to 6000 units as well.
At this point, the quantity supplied matches the quantity demanded.

This is known as market equilibrium. It is the state at which the market is operating efficiently i.e. no surplus nor shortages. The price of $1600 is known as equilibrium price and the quantity of 6000 is known as equilibrium quantity.

What would have happened if Iphones were sold at $800?
At the cheap price of $800, buyers are happy to buy as much as 10000 units but suppliers are only willing to make 1000 units (the low profit potential discourages them from making more).


In this case, since not all the demand has been satisfied yet, the buyers will continue to compete against each other and offer suppliers higher price for the Iphone, to $1600. This higher price again prompts supplier to produce more (to 6000 units) and discourage some buyers from buying, thus reducing demand (also to 6000 units).

This means that, once again, the market has reached equilibrium.

In my opinion, Apple Inc. should reduce the price of the iPhone 5 so that more consumers can afford to buy the iPhone 5 but it also needs to meet the equilibrium point of the market to avoid shortage or surplus.
by:nazira