So what did we learn!!!

1. So what did we learn!!! • Demand, Supply and the Market • Elasticity and Total Revenue • Market Optimization Techniques • Social Welfare • Government Policy Actions Check my blog website and your comments are welcome!!!! Prepared by Dr. Ikhlaas Fall 2012

2. Let’s see how we go! Several technologies such as the rise and collision of social, mobile and touch computing, have led to the introduction of new innovative products such as the Ipad from Apple and the Galaxy Tab from Samsung. By the release of the iPad 2 in March 2011, more than 15 million iPads had been sold – selling more than all other tablet PCs combined since the iPad's release. In 2011, it is expected to take 83 percent of the tablet computing market share in the United States. You are recently appointed as a market strategist, and your first task is to determine the effect of the following events on the price and quantity in the IPAD market. Prepared by Dr. Ikhlaas Fall 2012

3. Test yourself today! • A rise in the market price of IPAD due to the coming of Eid festivities. • Commercial Bank of Dubai recently launched a ‘no interest loan’ package for the first year upon the purchase of an IPAD. • National Bank of Abu Dhabi launched a ‘no interest loan’ package for the first six months upon the purchase of a Galaxy Tab. • Apple provides a free update on the software used to start IPAD, making the tablet faster to boot. • The IRS in the US decides to impose a tax of 12% on the current price of each Apple’s products. Prepared by Dr. Ikhlaas Fall 2012

4. The IRS decides to impose a tax of 12% on the current price of each Apple’s products and a tax of 15% on the current price of each Galaxy Tab. • The UAE Government implements a restrictive policy on the imports of IPAD due to more and more young kids accessing improper content on the web. • After Steve Jobs passed away, analysts expect the price of IPAD to rise in the next 6 months. Prepared by Dr. Ikhlaas Fall 2012

5. There is a decrease in the income of most of the working class population due to the effect of the global financial crisis forcing many companies to close down in the US. • There is a decrease in the income of most of the working class population due to the effect of the global financial crisis forcing many companies to close down in the US, followed by a reduction in the price of Galaxy Tabs. • The iPad uses an internal rechargeable battery made in Taiwan. Taiwan recently had a big cyclone destroying a major plant where the battery was made. Prepared by Dr. Ikhlaas Fall 2012

6. The iPad uses an internal rechargeable battery made in Taiwan. Taiwan recently had a big cyclone destroying a major plant where the battery was made. At the same time, Apple launched a campaign in UAE in Dubai Media City that the battery can provide up to 10 hours of video, 140 hours of audio playback, or one month on standby. • Apple’s executives are proposing to concentrate more of their operations in Iphone4, since the price of Iphone4 has been increasing more rapidly than the Ipad. • As part of expanding its market share of IPADs, Apple has launched 25 more Apple stores in the UAE. At the same time, there is a massive advertising campaign on some tv channels promoting the IPAD in the region. • Many universities are planning to adopt the IPAD as part of their teaching and learning methods within the next month. Assume all universities’ purchase of IPAD will represent 75% of the market share in UAE in the next month. Prepared by Dr. Ikhlaas Fall 2012

7. Integrating the Elasticity component • Do you think IPAD has an Elastic Demand? • What about the Elasticity of Supply for IPAD? • Is it a good strategy to raise prices on goods like IPAD in order to raise Apple’s profits? Explain your answer. • Would you expect the supply or the demand side to drive the market of IPAD? Explain your answer.

8. Elasticity and Total Revenue • You are given the following information about prices of IPAD and a new Touch phone called “VPAD”. • Price of IPAD drops from 3500 AED to 3200 AED, while it’s quantity increase from 2m to 2.2m. • VPAD is launched at a starting price of 3000 AED before dropping to 2800 AED soon after the IPAD’s campaign. Prepared by Dr. Ikhlaas Fall 2012

9. Analysis • Calculate and Interprete the following: • The Price Elasticity of Demand for IPAD. • The Cross Elasticity of Demand between IPAD and VPAD. • What do you expect to happen to IPAD sales following the decrease in price? • What do you expect to happen to VPAD sales as a result of IPAD’s campaign. Prepared by Dr. Ikhlaas Fall 2012

10. Market Optimization • Tim Cook, the CEO of Apple provides you the following information regarding the Price and Total Costs of IPAD’s market, based on data collected in the last 3 years. P = $900 - $0.1Q TC = $36,000 + $200Q + $0.4Q2 Prepared by Dr. Ikhlaas Fall 2012

11. Your task is to find the price and quantity that: • Maximise Sales • Maximise Profits • Minimize Average Costs • If instead of P = $900 - $0.1Q , you are given P = $450 - $0.05Q, how would you answer to the quantity which maximise sales change?

12. Optimization Continued • Given Fixed Costs are $10m, Variable Costs are $100 per unit, and IPAD sells for $500 each, calculate: • The quantity to be sold to break even • The quantity to be sold if IPAD is targeted to reach a profit of $120m. Prepared by Dr. Ikhlaas Fall 2012

13. Consumer Surplus, Producer Surplus and Dead Weight Loss • You are given the following demand and supply functions: QS = -2,000 + 800P QD = 4,500 - 500P Prepared by Dr. Ikhlaas Fall 2012

14. Calculate the following: • Price and Quantity at Equilibrium • Consumer Surplus • Producer Surplus • Total Surplus • Dead Weight Loss • Evaluate how would your consumer surplus change if there is a tax that is imposed on all IPADs and the quantity falls by 10%.

15. Government Intervention • Due to the increasing access of teenagers to supposedly “blocked” websites, the government decides to impose a price floor, to allow producers to charge a minimum price of 3000AED on all IPADs. The policy is aimed at reducing the number of teenagers purchasing those highly priced phones. Prepared by Dr. Ikhlaas Fall 2012

16. Try this one !!!! • QS = -17500+ 12.5P (Market Supply) • QD = 12500 - 2.5P (Market Demand) Calculate: • The consumer surplus, producer surplus and total surplus prior to imposing the price controls. Prepared by Dr. Ikhlaas Fall 2012

17. Analysis • Calculate the consumer surplus, producer surplus after the government price floor is implemented in the IPAD market • Calculate the change in social welfare and the dead weight loss for producer surplus. • Evaluate whether imposing such a policy is efficient? • Which other policy action can you recommend to the government? Prepared by Dr. Ikhlaas Fall 2012

18. Difference in Policy Actions • Is it better to impose a quantity control policy (i.e reduced supply of registration plates for taxi drivers) or impose a minimum price control policy? Explain your answer with the aid of a diagram. • Would consumers be better off if most people in Dubai use taxis to travel to work? Refer to the Taxi Medallions Case. Prepared by Dr. Ikhlaas Fall 2012

19. Come Early tomorrow Best of luck