After a successful sale on iphone 4s, apple company issued a new product that is iphone 5 with highly quality. As we know, apple is one of the famous brands. Many people are willing to buy and to have this new product because apple product somehow seems more classy and luxurious than other products.
From the information above, we can conclude that the demand for iphone 5 will be very high because buyers willing to pay a high price for the phone. As you can see at the article, iphone 5 preorders product sold out within 60 minutes in September 14th which is 20 times quicker compared to the iphone 4s. Which means the quantity of supplied remains but the demand increases dramatically.
First, I like to show you the equilibrium curve.
The yellow point in the middle of the line cross between red line (demand) and blue line (supply) is the equilibrium. Equilibrium happens at any price for which the quantity demanded and the quantity supplied are equal. Economists also refer to equilibrium as market-clearing. Because quantity of demanded and quantity of supplied are same there is no shortage nor surplus in the market, which means that neither consumers nor producers are tend to change the price or the quantity, which is an important situation for equilibrium.
As I said before, there is no change in supply but there is a high change in demand. Let me explain by this graph.
The demand curve shifts rightward from D1 to D2 which means the quantity demanded is increases and it cause shortage. If quantity demanded increasing, there is a movement up along the supply curve. The equilibrium price also rises from P1 to P2 and the quantity supplied will also increase from Q1 to Q2, so the sellers will get more profit.
The shift in demand causes a temporary shortage from q3 to q1 as the price related with the initial equilibrium of E1. This situation encourages the company (apple) to move upward along the supply curve (increasing quantity supplied, but not changing supply). Over several periods, sellers will increase their price to P2 and quantity supplied to Q2 until there is no more shortcomings at a new equilibrium point which is E2.
The demand elasticity for iphone 5 can be either elastic or inelastic, it depends on what kind of people are we talking about. For some people such as teenagers and other people that follow the trend and style, the demand elasticity is inelastic because they think iphone5 is a necessity. But for other people who think that iphone5 is not so necessary, the demand elasticity is elastic because the desire of this particular thing is not so big and they probably will think other options to fulfill their needs by substituting it.
The demand elasticity also depends on people income, since iphone5 is considered as luxury product and the price is quite high, people with high incomes probably will buy those iphone5 because they will still have money to buy some other things. But for people with average income they will think twice to buy this phone, because there will be some opportunity costs whether they decided to buy it or not. Opportunity cost is the best alternative sacrificed when you choose something, so if they think to buy this particular phone they will sacrifice other thing to get this product, maybe after they bought iphone5 they cannot have other expensive product since they choose the iphone 5. For people with low incomes, they probably will search another phone that has same functions with iphone but with lower price such as samsung or nokia. But, if iphone5 price is getting lower, people might buy this product if it fits their income.
Apple Company is one of the oligopoly markets. To make it more understandable, oligopoly market is a market structure characterized by a small number of firms that each behaves interdependently. There are other companies that also will make a product that similar to iphone5, for instance, Samsung companies are producing SIII which quite similar to iphone5 and nokia also producing new phone which called lumia that similar to iphone or Samsung. As we know, Samsung and nokia are more cheaper than iphone, so why the demand for iphone5 still high? It probably because apple companies provide a better service and the quality of the product is better, and some people are already loyal to apple product.
Since iphone5 is the new output nowadays, people with the higher income willing to buy this particular thing in higher prices. It can cause consumer surplus. Consumer surplus is the difference between the total amount that consumers are willing and able to pay for a good or service (demonstrated by the demand curve) and the total amount that they actually pay at the market price (P1). For instance, people with higher income willing to buy iphone 5 in very high price, let’s say the price they willing is $2000 while the market price is $850. So the consumer surplus is $1150.
Is the apple company considered efficient? The iphone 5 production can be regarded as underproduction because the demand is high but the supplies remain. Underproduction is the quantity supplied by the sellers are lesser compared to the quantity demanded by the buyers. Underproduction can also cause a market failure, that means apple company is regarded as inefficient company.
On the other side, black market can existed. Black market is a condition where the buying and selling of a products and services take place in an illegal manner. It can exist because the supply that produced is underproduction, the company is inefficient and arrangements between buyers and sellers. But it might just for temporary moment because apple is oligopoly market therefore many other companies as I told before will follow their product so the price will be decreasing sooner or later.
Normally, black market prices are lower than market price because black markets do not pay any taxes. But in certain condition such as shortage that is happening in the selling of iphone 5, the price can be higher than the normal price. In some countries, the iphone 5 even come out yet and if black market already have this product (iphone 5) they probably will sell it with higher price because the product is limited in that particular country. We can say that black market advantages the consumers since the prices is lower, and you will get it faster because the product is already there. But, it is unfair and if you get caught for buying from black market, you will be penalized for breaking the norms of trade which is illegal. So it is better to buy things at original market. Don’t go to black market and bought their stuff!