Smartphone Hits New High in year 2012

According to the article which uploaded on apple press info library on 24^th September 2012,
CLICK ME FOR MORE INFO they have announced that their latest product iphone 5 has sold over million in three days and over 100million user have been updated with their latest operating system- IOS 6. It shows the population of smart phones is much greater than last few years. Especially among Gen-Y, most of them are holding a smart phone and some of them maybe more than one. The population in between them is great enough to make you look weird if you don’t have a smart phone. To avoid from being abnormal, many people willing to buy a smart phone and the quantity demanded increase and increasing with a very high speed.

According to the Malaysia budget 2013, there is a RM200 rebate for smart phone purchase for those aged 21 to 30 years. This may encourage more teenagers to purchase smart phone.  It is because the rebate has decreased the amount that consumer have to pay. The law of demand states that when other things remaining the same, the lower the price of a good, the greater is the quantity demanded. Therefore, the quantity demanded of smart phone will increase because the price of smart phone is cheaper.

According to the graph above, due to the subsidy from government (rm200 rebate), price of smart phones have decreased from P1 to P2 and the quantity demanded increased from Q1 to QD2. According to law of supply, the quantity supplied supposed decreased from Q1 to QS2, however government have pay for the gap between P1 and P2, therefore quantity supplied remain at Q1.

Next, people who have higher income will have ability to buy a better good beside of buying an inferior good. Such as smart phone, consumers who have higher income will choose to purchase an Iphone because it is like purchasing Louis Vuitton or Chanel in fashion luxury, it is branded and expensive. It can show others how wealthy you are. For those who not afford to buy a smart phone, they may buy a cheaper phone which is an inferior good. As the income and quality of life are increasing, people will decrease the demand of the inferior goods to improve their life. Which means that people will reject to use nokia 3310 if they able and afford to buy a Samsung Galaxy s3.

Beside demand, supply of smart phone also a reason which caused smart phone hits new high. The price of smart phone is higher than other phone. According to the law of supply, when other things remaining the same, the higher the price of a good, the greater is the quantity supplied. Therefore, supplier increased the quantity they willing and able to supply. However, the technology which used to produce a smart phone that may changes suppliers’ plan. It is because the technology is limited and couldn’t change in a short time.

For examples, iphone5 was announced at the Yerba Buena Center on September 12 2012 and available for pre-order on September 14 2012. One week later after the iphone5 was announced over two million orders had been taken just on September 14 and five million in the first three days of its release. Apple Inc claims that they couldn’t produce so many iphone5 in time because they don’t have enough inventory and technology to speed up the process. Therefore consumers have to wait until the middle or the end of October to get their new iphone5.

Due to the technology is limited, there are many shortage problems happened in smart phone market. Shortage forces the price up because consumers cannot force producers to increase their output immediately. Powerful forces operate to increase the price and move it towards to equilibrium price. According to the law of supply, when other things remaining the same, the higher the price of a good, the greater is the quantity supplied. Supplier will increase their output to maximize their profit. On the other hand, the law of demand which claim that when other things remaining the same, the higher the price of a good, the smaller is the quantity demanded. Consumers will decrease their quantity demanded because the price they have to pay is higher. The quantity of demanded will reduces until it reached market equilibrium.

          

The demand of a smart phone also depends on loyalty of consumers. Such as iphone5, even though it is selling at a very high price and have to wait for a long time, there are still many consumers willing to purchase it. It is because iphone5 is one of the apple product, they just cannot wait to grab it as one of their collections. When income is increased, consumers will not purchase more smart phones because holding a smart phone is already enough for them. The income elasticity of demand of iphone5 is inelastic because the percentage change in quantity demanded is lower than percentage change in income and the total revenue increase.

The elastic of supply of smart phones is measured by the percentage change in quantity supplied divide by percentage change in price. As the price of smart phone is rising, the quantity supplied had increased. However, the technology issues have brings a lot of restriction and limit for supplier to increase their product. Therefore the elastic of supply of smart phones is inelastic which means the percentage change in quantity supplied is smaller than the percentage change in price and the total revenue increase.