Apple Profit Growth - Case Study Example

Economics Article Analysis-Apple’s Profit Rises 78% on Appeal of New Devices Introduction The world is full of resources, however abundant but limited. These finite resources will eventually end up if the world continues to use them relentlessly. It is therefore very important to save them for the future and that is what Economics is all about. It is about allocating scarce resources in such a way that the utility derived from them is maximized. Demand, supply and their relative elasticities are the most important topics in microeconomic analysis. Demand tells the willingness of a buyer to purchase a product given that he has the purchasing power to do so. It is affected by the number of sellers, the type of the good, related goods available such as substitutes and complements, weather and some other elements that are specific to the good. The supply tells the willingness of a seller to sell his good at the market price. It is affected by the number of sellers, the type of good, the cost involved in production and the availability of factors of production. The price elasticity of demand is a measure that tells how likely is a consumer to demand a particular good as its price changes. It is measured by the ratio of change in quantity demanded to the change in price. It is generally a negative quantity, values lesser than 1 in magnitude show inelastic demand, values greater than 1 in magnitude show elastic demand and a value of 1 shows unitary elastic demand. The price elasticity of supply is the same concept extended to the supply side of the market. This paper seeks to analyze the aforementioned concepts in the light of an article published by Miguel Helft in New York Times on July 20th, 2010. This article focuses on the changes in demand, supply and their relative elasticities of phones and computers by the company Apple. It analyzes how demand has changed and so to cater the change in demand, the company had to change its supply. It also brings into focus all the revenues, profits and costs associated with the production process to analyze the financial aspects. Figure 1: Ever green apple products- the iPhone and iPod. http://www.pmptoday.com/wp-content/uploads/2007/09/new-apple-products.jpg Economic Concepts used and their Analysis in the light of the News article The news article by Helft begins with a slight criticism for Apple’s latest venture- iPhone 4. It has received a mixed response from the customers. Despite many alluring features and a beautiful touch screen, iPhone 4 is criticized for its inability to hold calls effectively. Many customers have complained that as soon as they touch to the left of the antenna enclosed in the casing, the call drops. Despite the slight fault on the company’s part, Apple stays unaffected from probable losses. The company is doing great financially and the net incomes rose by 78% since the last quarter. It uses the concept of increase in demand and supply to show how the profits rose considerably. Apple is now known for iPhones, Mackintosh computers and now the iPad. The demand for phones, computers and tablets by Apple is immense. Despite their soaring prices, everyone wants an Apple product. This giganticity in demand can be explained by the bandwagon effect of demand as explained in Economics (Marshall, 1997). As consumers continue to purchase Apple products and show them off as classy, perfect quality products, their friends and families also want to buy the same products – this is known as the bandwagon effect. In this quarter alone, Apple has succeeded in selling over 3.3 million iPads and 8.4 million iPhones which explain the tremendous demand of Apple products. It also explained that since the demand of Apple product is so huge, the company had to increase its supply to meet the increase in demand. Of course, if the demand is much greater than the supply, there would be a shortage in the market. More people would be demanding the product and there would be less units of the product available for purchase. This would agitate prospective buyers and they will look for substitute goods that are available more easily in the market. Therefore, to cater to the increase in demand, Apple increased the supply of its products. A new center at Shinghai, China has been constructed to cater to the increased demand. Apple used China to build its new center realizing that the labor costs in China are much lesser than those in the west. Also, it is easier to find skilled workers in China and the costs of production are low. These factors are favorable for supply conditions. The elasticity of demand comes into play when the writer mentions that many people are turning their backs towards iPhone 4 because of the recent controversy that surrounds. Any small increase in the price of iPhone 4 will thus drop its demand by many folds. Not many people are very enthusiastic about the new product and there are problems associated with frequent call dropping with the set therefore any changes in its price will greatly affect the demand. However, to cover up the fault and attract prospective buyers, Apple has agreed to give customers free bumper cases. These will insulate the antenna from human touch thereby avoiding the call from dropping every time the user touches the antenna. These bumper cases are complementary goods to the phone and will be sold with the phones. The demand for these bumper cases depends on the demand for iPhone 4. This is another practical application of Economics of related goods being used. Apple can further arrange for pouches for the phone and other accessories to make it more alluring for prospective buyers. Complementary goods are often the most successful agents in promoting a good. Also, the company needs to realize that in order to make its mark in the long run, Apple products must not only allure prospective buyers but also retain customer loyalty. It can do that by adding new attributes to its upcoming products, install breathtaking features and make them more user friendly. Also marketing in a more globalized, easy to understand fashion would help. Demand for any product varies greatly over time but consumer loyalty is what forces the consumers to go for the same trusted brand every time they need to shop. Therefore, Apple products need to appeal the consumer more than just once in a life time. For that, the company needs to work more on the quality of goods that it delivers. Figure 2: The iPad http://assets.nydailynews.com/img/2010/01/28/alg_ipad3.jpg The article also mentions the soaring profits by Apple, the revenues and the incomes as in the last quarter. What needs to be done with these figures is to dug them in more deeply and analyze what trends these figures show. Merely digits are meaningless, but the company needs to perform a cost benefit analysis and get useful feedback on how it can improve the company in the long run and ensure that it continues to reap profits forever. Conclusion On the whole, the article provided subtle information on the running of Apple as one of the most successful firms in the industry today. It gave statistics to help understand the magnitude of success that Apple has achieved over the years. It also helped understand the various economic factors that come into play making the firm a successful one such as the interaction of demand and supply, the lack of compatible substitute goods and the launch and promotion of complementary goods. It also seeked to explain how a firm such as Apple has managed to keep its production costs low by building its production units in China which is known for cheap labor and abundant supply of raw materials. All in all, Apple presently has all the ingredients that are necessary for an emerging firm to succeed, what it needs to do in future is to keep a check on its progress and ensure the graph of success is always pointing upwards. Figure 3: The new Apple tower in NY city. http://vivswords.com/APPLE%20STORE%20NEW%20YORK%20CITY.jpg References Marshall, A. (1997). Principles of Economics. Pormetheus Books. Read More