Microeconomic Analysis Paper for Apple Inc

Paper Type:  Case study
Pages:  7
Wordcount:  1815 Words
Date:  2022-07-08

Introduction

Since Apple Inc. establishment in April 1976 by Steve Jobs and Steve Wozniak, the company has emerged to be one of the most innovative companies in the world of electronics. The company has adopted the most advanced technology to produce products which suits the consumer's tastes and preferences. The release of products which are unique and at the same time compatible with the consumers need has made the company very popular in the past two decades.

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The company's line of business is the electronic industry. It mainly designs, manufactures and sells media and communication products. They include mobile phones, computers, and digital music players which it continually innovates to maintain its competitiveness in the market. In addition to the products the company also designs supportive applications and software to these products (Lashinsky, 2012). These products are mainly incorporated in the Apple products, and the users are required to purchase them. The company has also ventured into networking and connectivity operations. Some of the company's main items include computers (Mac books), iPhone, iPad, iPod, and Apple watch. Apple applications and software include Apple Store, iCloud, iOS App Store and Apple Music. Since 2007 a new iPhone is being introduced to the market by Apple with unique features and characteristics making its consumers glued to them.

In 2016 there was a difference in the annual sales. According to Apple annual reports, the net sales of the company was $7.5 billion (13%) shimmering a decrease in sales compared to the second quarter of the previous year. The reduction in the sales was attributed by the fact that the country currencies of some its consumers were weak when compared to the dollar. However, in the recent years, the sales of Apple have stabilized.

Supply, Demand, and Market Equilibrium

Changes in demand and supply of a product have effects on the market price of the commodity. Consumers are very alert to changes in price. Changes in price to have a consecutive impact on the sales. Apple products are trendy for their unique features and price. Consumers who want to fulfill their utility will go for less expensive models. Apple, however, maintains production of high-quality brands which suits the demand of particular market class of users. For instance, there are many competitive smartphones brands which are competing with iPhone 6 in the market but despite the competition and demand changes its sales have remained positive.

Price Elasticity of Demand

"Elasticity of demands explains and measures the effect of the change in the quantity of demand in response to an adjustment to the price" (Wikipedia, 2019). Meaning that any significant change in the price of a product, mainly attributed to the changes in the cost will cause a substantial change in the demand for the product. Changes in demand will cause a significant change in sales. However, recently released iPhone 7, 8 and X revealed an inelasticity in demand whereby despite their high prices in the market $700, $800, and $1000 respectively the company was still able to make over 52.2 million sales during its first three months last year. This is because the iPhone is so popular amongst its consumers and are always waiting for new brands. Therefore, despite the increase in price the demand of the iPhones mentioned earlier remained constant.

Two Non-Price Factors that Impact Demand and Supply

Non-Price Factors for Demand

Consumers Income: The consumers' income has an impact on the demand of the product and consequently on the supply of the product in the market. This is because the consumer's income dictates the purchasing power of the individual. Changes in the income levels of consumers of Apple products cause the inelasticity of demand for the product. For instance, in the first world country, the income of many citizens keeps on increasing due to better performances in their economy every year. For example, in Singapore, people are becoming more productive and more stable due to better performance of the economy; therefore, the demand for the Apple iPhones will increase (Scholz, 2017). In these first world countries, a smartphone is considered as a standard product, and consequently, growth in the level of income triggers a rise in demand for these standard products. The readiness of extra disposable income will make the customer view the iPhone 8 for instance as an average good instead of a luxury good.

Marketing and Advertising: It is through marketing and advertisement that a firm can convince its customers to purchase their product. Apple Inc. has mastered the art of marketing and advertisement by highlighting the differences between the old and new iPhones models making the consumers to buy them even when it's not necessary. For instance, Apple illustrates customers satisfying feeling when they read or watch videos on the plus model through their advertisements (Elmer-Dewitt, 2015). They can capture the consumers need uniquely, making them willing to purchase their products at any cost.

Non Price Factors for Supply

Effects of the government regulations: Although the base of Apple operations is in the US its products are manufactured in many other countries such as China and South Korea. The governments of these countries have put in place regulations such as taxes. Such regulations influence the supply of Apple products since taxes increase the cost of production. For example, in trying to protect the local industries the government of China can impose more export tax on the iPhone, this results in a decrease of supply in relations to the demand. Contrary to this, the US government can give subsidy to Apple products since it is a domestic industry to promote economic growth in the country. This will encourage individuals to purchase the product more and therefore an increase in the supply of the Apple products.

Change in technology: Technological advancement is very crucial for any company. Apple Inc. is one of the best innovative corporations in the world with new releases of iPhone every year. These new technologies are usually very costly, and this increases the production cost. Increase in production cost causes a reduction in the supply. However, Apple 's iPhones are one of those products that need to update its technology rapidly to control the market. Since Apple wants to have the latest innovation in producing new iPhone thus increases worker productivities which will increase the supply.

Industry and Market Equilibrium

Market equilibrium is reached when the amount supplied is equal to the amount demanded. This creates a condition where there is no surplus in the market. Apple is faced with constant competition from companies like LG and Samsung, and for it to remain dominant in the market, it introduces new brands of iPhone to improve their sales and reach market equilibrium. For example, Apple introduced the iPhone 8, 8 plus and X in a span of a few months and through this, they increased their sales, and in the begin of this year, they reached the market equilibrium.

Prediction

With time the supply of these new brands in the market will increase therefore creating a surplus in the market. By the beginning of next year, the demand for the brands will be low, and consequently, the prices will reduce, this creates the best condition for the company to bring in their new iPhone series which will make the demand to shoot up again.

Production and Cost

Factors of production refer to the inputs that are put into place in the production of a particular good or service. These inputs or costs are generally categorized into two, i.e., fixed costs and variable costs. Fixed costs are costs which do not vary with the level of production, i.e., they are independent. The firm has to incur them whether it is producing or not.

On the other hand, variable costs are costs which vary with the level of production, e.g., labor. In the production of the Apple iPhone series, a lot of factors, as well as costs, are involved. The three main ones that come into play are capital, labor, entrepreneurship, natural resources (glass) among other variable costs.

To start with there is a substantial capital investment in the production of the Apple iPhone series. There are a lot of physical materials as well as technology that is involved in the production of Apple X for instance (Weise, 2018). Some of these materials are very expensive to acquire as some have to be outsourced from other countries. Technology, on the other hand, is critical in the formulation of innovations. This technology also comes at a high cost. However just like many firms, in Apple Inc., the production of the product aims to lower the cost of finance as much as possible. To realize the product design a low-cost workshop is used to minimize the production cost. The cost of financing such a workshop is always minimum and can accommodate most of the workers in the firm.

There are a lot of wages incurred in Apple Inc. in the production of the Apple iPhone series. This is due to the massive number of employees involved in designing the product, marketing and the sales department, prototyping and the external people who work in foreign countries. But through the use of external labor for the manufacturing of the product, the company can cut down the labor cost. This is done because of the high cost of labor in the US. As discussed above, the company has many other workstations all around the world, and in these stations, there are a lot of employees present. This also increases the cost of labor.

Entrepreneurship is the factor of production which is very critical to the success of Apple Inc. over the years. Through its CEO and co-founder Steve Jobs, significant innovations and revolutions are ensured in the production of the iPhones so that they can maintain their competitive edge compared to their rivals. For example, iPhone X is the only prototypical to feature what Apple has labeled a "Super Retina" display. At 458 pixels-per-inch (ppi), this screen has the highest pixel density ever seen in an iPhone (Hotelling et al. 2010). This makes the phone unique in the market. Apple success over time can only be attributed to good entrepreneur skill by top management, who are responsible for establishing long-term plans and strategies.

Land or Natural Resources as a Factor of Production

Land as a factor of production mainly consists of the natural resources such as glass that is primarily used in the production of iPhone series. The availability of such factors usually comes at a cost. The company also has many branches in the world. In these foreign countries, the company has to rent buildings where they can set up their factories. These rents upsurge the cost of production.

The Variable Cost in the Production of the Product

There are various variable costs that the company incurs. This includes the cost of materials like glass and plastics, transportation costs, warehousing (storage costs) among other factors. These variable costs vary with the level of production. Manufacturing costs are...

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Microeconomic Analysis Paper for Apple Inc. (2022, Jul 08). Retrieved from https://proessays.net/essays/microeconomic-analysis-paper-for-apple-inc

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