Economics Project Done by: Eddie Poh Jay Lim Wei Heng Sandeep Singh Shaun Ng Yan Jie Chu Wee Sheng
Background Information of iPads The iPad was announced on January 27,2010 and released in the USA on April 4,2010. It is then on sale in parts of Europe, Canada and Australia by the end of April.
How is the price of iPad decided? The iPad is priced between $499 and $829, depending on the different models. This price is set due to the interaction between both the buyers and the sellers. Market research is conducted to find out both how much people is willing to pay for the iPad and also to see how much Apple is willing to sell the iPad . Also ,as all firms seek to earn profits ,the price which the iPadis sold at should be more than the price to manufacture it.($259.60)
Products related to iPads One related product would be the iBooks application announced in conjunction with the iPad. iBooks is an e-book application by Apple Inc . Users of this app are able to read electronic versions of books on the iPad, with more books available for purchase on the iBookstore. Also, there are additional features such as changing the font and text size of the book. Another iPad accessories would be the iPad case which can be used to stand the iPad in various positions.
Substitutes (Consumer’s point of view) Substitutes are products that buyers perceive as having some characteristics and utilities in common. Examples of substitutes are Samsung Galaxy Tab, and Motorola Xoom, which satisfy the same wants and needs the iPad does and even have better features and specifications. Since the prices of these Android tablets are lower than that of the iPad, consumers may choose to buy them over the iPad to maximize satisfaction. As a result, the demand for iPad will therefore decline. (The rate of decline depends on how close the 2 goods are as substitutes) This causes an inward shift in the demand curve for iPad and resulting the equilibrium price for iPad to drop. Thus, consumers will seek to purchase the iPad at a lower price.
Compliments (Consumer’s point of view) Complementary goods are goods which are consumed at the same time; as a result, the demand for one will increase if the price of the other falls. One example of complementary goods for iPad is “Apps” (known as applications). The increase in the price of iPad “Apps” such as iBook and Pandora will lead to less quantity demanded and hence a decline in the demand for iPad since they need to be used jointly. (Furthermore, the prices for these apps are cheaper on other Apple devices such as the iPhone.) This causes an inward shift in the demand curve for iPad which results the equilibrium price to decline. (The rate of decline in demand for iPad will depend on how close are the two complementary goods.) Thus, consumers will seek to purchase the iPad at a lower price.
iPad market in China (producer’s point of view) The iPad has already entered the Chinese market. Apple plans to have 25 new stores in China by the end of 2011, making the iPad available for purchase in China. As a result, the supply of iPad will increase, shifting the supply curve to the right. This would mean a decrease in quantity demanded. However, analysts predicted strong demand for the iPad in China as a result of China's growing luxury goods consumption. Thus, there would be an increase in both supply and demand for the iPad. The increase in demand leads to a higher price, while the increase in supply leads to a lower price. The effect on equilibrium price depends on which curve shifts more.
Unforeseen circumstances like natural disasters (producer’s point of view) Unforeseen circumstances may also affect the marketing and pricing decisions. Take the earthquake in Japan, for instance. Certain parts for the iPad are manufactured in Japan. Due to the earthquake, production has ceased. Furthermore, it is difficult for Apple to secure a supply of these parts from an external, non-Japanese source. As such, since not enough iPad parts are produced, the number of iPads that can be produced will also decrease. Thus, the supply of iPads will decrease in the short run, shifting the supply curveleftwards. As a result of this, Apple will increase the price of iPad as consumers attempt to outbid one another in order to get the iPad.
Acknowledgements http://www.wikipedia.org http://en.mimi.hu/marketingweb/substitute_products.html http://mashable.com/2010/01/27/9-upcoming-tablet-alternatives-to-the-apple-ipad/ http://www.economics-dictionary.com/definition/complementary-goods.html http://news.bbc.co.uk/2/hi/8590300.stm http://www.eweek.com/c/a/Mobile-and-Wireless/10-Essential-Apps-Every-iPad-Owner-Should-Have-310714/ http://blogs.abcnews.com/theworldnewser/2010/09/cheers-in-china-at-ipads-launch.html http://www.bloomberg.com/news/2011-01-31/android-tablets-gain-on-ipad-in-fourth-quarter-researcher-says.html http://www.bbc.co.uk/news/business-12782566