iPhone Demand and Supply Analysis

Principle of Economics with Land Reform Taxation SOSC107 (PCS32)

iPhone: Demand and Supply Analysis Prelim Output

Submitted to:

Ms Chealyn Lleno Submitted by:

Ryan Philip Detabali Alfonso Luis Oblena Justin Albert Garcia 25th of September, 2017

iPhone: Supply and Demand Analysis The iPhone is known as a line of smartphones designed by Apple Inc. It is run by an iOS operating system and was first released on June 29, 2007. It has all the features that Android has but with a different approach. Consumers buy the product because of its eco-friendly user interface. Its first introduction to the market was described as a “game-changer” for the mobile industry. Former Apple CEO Steve Jobs diverted the original focus from a tablet towards a phone. It had an estimated development cost of US $150 million over the span of thirty months. 6.1 million units of the first-generation iPhone were sold over five quarters. An increase in sales each year can be observed for each innovation in the iPhone models. At present, the iPhone 7 and 7 Plus has earned a total of 170.11 million for the first three quarters of 2017.

Figure 1 - Worldwide iPhone sales by Apple’s fiscal quarters (Q1 2009 – Q1 2017) Source: https://www.statista.com/statistics/263401/global-apple-iphone-sales-since-3rd-quarter2007/ Users are also guaranteed with the iPhone Upgrade Program which is a 24-month program that allows consumers of the product to get the latest iPhone every year without paying the whole price upfront. The United States were known for producing quality smartphones since the introduction of Apple products especially the iPhones. It helped the economy of the country since the products were being exported and localized to other countries. Expansions of the Apple Company can be seen in our country through the approved retail stores such as PowerMac Center and Switch. Its major success allowed the company to invade foreign countries and expand their

territory. The consistent export and import of the product helped in boosting the economy. In return, users were also happy and contented with the product that they buy from the company. Model iPhone 3GS iPhone 4 iPhone 4S iPhone 5 1iPhone 5s iPhone 6 iPhone 6 Plus iPhone 6s iPhone 6s Plus iPhone SE iPhone 7 iPhone 7 Plus iPhone 8 iPhone 8 Plus iPhone X

Year released and active (2009–2012) (2010–2013) (2011–2014) (2012–2013) (2013–2016) (2014–2016) (2014–2016) (2015–present) (2015–present) (2016–present) (2016–present) (2016–present) (2017–present) (2017–present) (2017–present) iPhone Price History Source: www.apple.com

Price Range $99-$199 $199-$299 $199-$399 $199-$399 $199-$399 $199-$399 $299-$499 $199-$399 $299-$499 $399-$499 $649-$849 $769-$969 $699-$849 $799-$949 $999-???

In the past few years, iPhone has seen a price hike of at least 10 times more than its price way back in 2009 with the iPhone 3gs selling at $99, while the iPhone X (10) is selling at $999. The overwhelming demand for iPhones lead to numerous price increases to meet the supply and demand equilibrium.

Sales (in millions)

iPhone Change in Price and Demand 2009-2016 90 80 70 60 50 40 30 20 10 0 99

199

399

Price (USD) Figure 2 – iPhone Change in Price and Demand

649

The definition of SUPPLY, for instance, is the amount of iPhone’s ready to be sold in the Apply Store. The law of supply tells that if the price of iPhone’s goes up, Apple will be able to produce more units, thus meeting the demand. Illustrated on Figure 2, we have seen the rise of sales and as well as its price. The sales indicate a rise in demand, and for the supply to meet with the demand, Apple must make more iPhones, which means more productions plants and materials are needed. In the law of supply, higher price means more supply, in relation with that, Apple raised the price to meet the supply. DEMAND is how many people want an iPhone at the set price. The Law of Demand states that an increase in the price of the product, will lead to a decrease in its demand. However, certain products such as the iPhone continue to be demanded even after the price was raised, this indicates a positive feedback from the consumers.

The SUPPLY AND DEMAND CURVE is a graphical portrayal of the connection amongst supply and demand. For our situation, supply speaks to what number of iPhones are made, while demand demonstrates how much the general population need them. EQUILIBRIUM is when the

amount

of

iPhones

supplied meets the demand of the people, but this is not always the case, especially in the iPhone market. In the market there is always a time when there is SURPLUS. With iPhones, that means there are more made than are being demanded. For older iPhones, like the iPhone 6s, there are probably more surplus because the demand for it has decreased of the release of newer models, however the production of the product was not ceased therefore creating surplus. In Figure 1, it can be seen that in Q1, the iPhones’ sales are doing high

up, while in the next three quarters, sales actually came down, that was because the iPhones were just release and most of the consumers already the phone at that time, while in Q3, there is another iPhone release, therefore decreasing the demand for older models.

Analyst say that iPhone X unlikely to reach supply-demand balance until 2018 Source: https://www.macrumors.com/2017/09/15/kgi-iphone-x-supply-demand-balance-2018 With surplus' comes SHORTAGES. As we see everytime a new iPhone comes out, there are so many people that want to buy it, but sometimes there is not enough to supply. This is a shortage. When supply is less than demand. So companies must supply all the demand and return to equilibrium. For many people this is bad.

This is where

SUBSTITUTION EFFECT comes in, it is where another product is chosen over another product for a certain reason. For iPhones, when the supply does not meet the demand, there will be a shortage of iPhones, and that may lead the consumers into choosing another phone made by its competitors such as Samsung’s Galaxy S8. iPhone is generally considered as phone that is superb in quality and above other phones in the market, its price is also generally higher than competitors. When consumers receive higher incomes, they tend to buy things that are expensive, yet has good quality. This is called the INCOME EFFECT.

REFERENCES:  https://www.statista.com/statistics/263401/global-apple-iphone-sales-since-3rd-quarter2007/  https://www.apple.com  https://www.macrumors.com/2017/09/15/kgi-iphone-x-supply-demand-balance-2018