Supply and demand are one of the most elementary concepts of economics and it is the stamina of a market economy. Demand refers to how much (quantity) of a merchandise or service is preferred by buyers. The amount demanded is the quantity of a merchandise people are prepared to buy at a definite price.
The correlation involving price and quantity demanded is branded as the demand correlation. Supply represents how much the market is able to tender. The amount supplied refers to the quantity of a certain good producers are ready to supply when getting a certain charge. The relationship connecting price and the amount of good or service supplied to the market is known as the supply correlation. Price, hence, is an indication of supply and demand.
IPod, the focus of the study, is a streak of moveable media players produced and marketed by Apple Inc (Hesseldahl, 2005, November 1). The merchandise line-up at present consists of the hard drive-based iPod archetypal, the touch screen iPod Touch, the compact iPod Nano, and the ultra-compact iPod Shuffle. IPod classic models stock up media on an inside hard drive while all other models use flash reminiscence, in order to facilitate their smaller size.
As by many other digital music players, iPods can also serve up as peripheral data storage devices. While the iPhone and iPad have basically the same media-player capabilities as the iPod line, they are normally treated as separate products. In the previous few years, iPhone and iPad sales have overtaken those of the iPod. Studying the trend of demand and supply for IPod is necessary in marketing.
Again, it enables managers at Apple IPod to make suitable pricing decisions. This study seeks to explore the demand and supply of Apple IPod through the use of the laws of demand and supply. We selected Apple IPod in this case since its demand overshadows the supply.
The Law of Demand
This law stipulates that when the price of a product increase, the amount demanded will decrease, all other factors held constant (Hubbard, 2008). Some factors that may control demand include income, tastes and preferences, price of related products and expectations.
As income rises, we gain the power to purchase extra products. As the demand for a product increases with a rise in income, we describe that product as a normal good. As demand for a product reduces with an increase in income, then we describe that product as an inferior good.
Related products may appear in two forms, which include substitutes and compliments. Substitutes are identical goods, which can be used as substitutes to the good. Some examples of substitute products include butter/cheese and Pepsi/Coke. People, in many occasions, take substitutes of products that are less costly. Complements are products that are used hand in hand (Blackwell, 2006). Some examples of compliment products include sugar/tea, eraser/pencil and radio/batteries.
Tastes and preferences play a key role in determining the demand for goods, although, they have less impact in the short run. Lastly, when people expect the price of a product to increase in prospect, they tend to purchase that product at that time, thus increasing current demand (Blackwell, 2006). This is a different example of the law of substitution, as a person substitutes ahead of the projected, comparatively costly future use.
Demand curves separate the association between the amount on demand and the price of the good, when holding all other pressures constant. The curves demonstrate the different prices that a good may cost. As the cost of the good shift, quantity demanded changes, but demand does not adjust. Price changes entail a movement alongside the existing demand arc.
Market demand is the outline of all the entity demand curves of those in the market. It is the straight sum of entity curves and adds all the quantities demanded at each value. The major concern is in market demand curves, as there are averages of entity performance tend to be dutiful.
When any pressure other than the cost of the merchandise changes, such as earnings or taste, demand change, and the whole demand curve will change (either up or down). A move to the right (and up) is called an raise in demand, while a move to the left (and down) is called a reduce in demand. For instance, there are two ways to depress smoking: increase the cost through levy or make the flavor less attractive.
The Law of Supply
When the price of a good increases ceteris paribus, suppliers present additional products (Hubbard, 2008). This means that price and amount supplied are positively linked. The cost of production is the key factor that controls supply. It comprises input prices, expectations and technology. When the prices of inputs, for instance, raw resources, capital and labor augment, production is apt to be less gainful, and less production takes place. This results in a reduction in supply.
Technology links to techniques of changing inputs into outputs. Enhancements in technology will decrease the costs of manufacture and make sales further gainful. Hence, it tends to augment the supply. Also, if companies expect prices to increase in prospect, they may attempt to manufacture less at that time and further afterwards (Volkmann, 2010).
The connection amid the price of a product and the amount supplied, slopes upwards, when all other factors are at constant. The whole curve represents supply, but not just a single point on the arc. As the price of the good changes, the amount supplied transforms, although supply does not vary. As the cost of production transforms, supply varies, and the whole supply curve changes.
Market Supply is the addition of all the entity supply curves, as well as the horizontal summation of the entity supply curves. It is controlled by the aspects that control entity supply curves, for instance, the quantity of suppliers in the market and cost of production (Hubbard, 2008). In other words, the larger the number of companies producing a commodity, the bigger the market supply.
As the amount supplied at a particular price reduces, the entire curve changes to the left as there is a drop in supply. This is usually caused by an augment in the cost of manufacture or reduction in the quantity of sellers. An increase in wages, cost of capital, cost of raw resources and ceteris paribus, will reduce supply (Hubbard, 2008). At times, weather may as well influence supply, if the raw resources are fragile or inaccessible because of transportation issues.
Equilibrium
Equilibrium is the meeting point of the demand and supply curves (Hubbard, 2008). The price where the amount on demand equals the quantity supplied is the equilibrium price. The amount where price attunes in order that QD = QS is the equilibrium quantity (Hubbard, 2008). The amount that buyers are ready to buy exactly equals the amount the producers are enthusiastic to sell, at the price of equilibrium. Activities of sellers and purchasers are apt to shift a market in the direction of the equilibrium.
Excess Supply/Demand
Excess Supply occurs when the amount supplied is greater than the amount on demand, and outcomes in surplus at the existing price. In the circumstance of excess supply, price becomes extremely high. Hence, inventories rise and suppliers respond by reducing prices, up to when the price drops to the equilibrium.
Excess Demand takes place when the amount on demand is greater than the amount supplied and consequences shortages at existing prices (Hubbard, 2008). In instances of excess demand, purchasers cannot acquire all they desire at the going price. Hence, sellers discover that their inventories are lessening and they can increase prices with no loss in sales. Prices rise until market arrives at equilibrium.
Every aspect of this literature on demand and supply is essential in our case study as it enables us to understand how demand and supply shifts, factors that stimulates shifts and how prices are constructed.
Methodology
The study depends on the compilation of primary information from usual agents of the value chain consisting of traders, producers and retailers as well as secondary sources, which have previous reports and statistical information regarding Apple IPod. From the over 1 million video downloads, it is evident that demand is outpacing supply of Apple’s IPod. In the month of October, Apple’s share price, by market, shifted from $3.12 to $57.59 (Hesseldahl, 2005, November 1).
Supposing that every new iPod holder has downloaded from 5 to 10 videos, we may approximate the quantity of IPod units sold, in the earliest weeks in market, to be 100,000 and 200,000. After considering this, we try to represent the relationship of various factors that affect demand and supply in a demand-supply curve.
Research Results
This graph shows the supply and Demand for Apple’s IPod.
The subsequent is an explanation of what happens to the demand and supply arc as well as equilibrium price and quantity in different circumstances. Once the cost of earphones and IPod cases fall, cost of compliments drop, demand raise and supply settle the same as Q and P increase. When the cost of downloading music on-line raise, the cost of compliments raise, demand reduce and supply settle the unchanged as Q and P drop.
Whilst innovative, a rival of Apple IPod decreases the cost of all their mp3 players, the cost of stand-in decreases, demand decreases and supply settle the same as Q and P drop. Assume Becky and Bridget show their baby toddler on TV and name their child after “IPod”, the partiality l changes, demand raise and supply settle the same as Q and P increase (Volkmann, 2010).
Assume IPods are made in China, and Chinese regime choose to cut levy for foreign companies in order to draw more venture, the capital for manufacture increases, demand stays the equivalent and supply increases as Q rises and P drop.
Then, presume that in China, the price increases so stern that the industrial units have to raise workers’ wages, wages for employment in manufacture raise, demand stays the equal and supply decreases as Q drop and P increase presume the industrial unit used to labor for Apple now understand that it is more lucrative for them to labor for innovative and resolute to split up with Apple, the work for manufacture reduce, demand settle the equivalent and supply decreases as Q decreases and P increases.
In case the cost of headphones and IPod cases fall and IPods are prepared in China and Chinese administration make a decision to decrease levy for overseas corporation in order to draw more investment, supply and demand raise as Q increases and P is in determinant. Indeterminacy arise when the adjustment in cost or quantity might increase or drop, depending on the extent of alteration. Alteration in supply and demand, mutually, increases the state of indeterminacy.
In conclusion, exploring demand and supply is vital as it aids in marketing and making price decisions. Demand refers to how much (quantity) of a merchandise or service is preferred by buyers. The amount demanded is the quantity of a merchandise people are prepared to buy at a definite price; the correlation involving price and quantity demanded is branded as the demand correlation.
Supply represents how much the market is able to tender. The amount supplied refers to the quantity of a certain good producers are ready to supply when getting a certain charge. Hence, price is an indication of supply and demand.
The law of demand stipulates that when the price of a product increase, the amount demanded will decrease, all other factors held constant. Some factors that may control demand include income, tastes and preferences, price of related products and expectations.
Demand curves separate the association between the amount on demand and the price of the good, when holding all other pressures constant. The curves demonstrate the different prices that a good may cost. As the cost of the good shift, quantity demanded changes, but demand do not adjust. Price changes entail a movement alongside the existing demand arc.
The law of supply states that when the price of a good increases ceteris paribus, suppliers present additional products. This means that price and amount supplied are positively linked. The cost of production is the key factor that controls supply. It comprises input prices, expectations and technology. When the prices of inputs, for instance, raw resources, capital and labor augment, production is apt to be less gainful, and less production takes place. This results in a reduction in supply.
Market Supply is the addition of all the entity supply curves, as well as, the horizontal summation of the entity supply curves. Equilibrium is the meeting point of the demand and supply curves. The price where the amount on demand equals the quantity supplied is the equilibrium price.
Excess Supply occurs when the amount supplied is greater than the amount on demand, and outcomes in surplus at the existing price. Inventories rise and suppliers respond by reducing prices, up to when the price drops to the equilibrium. On the other hand, excess demand takes place when the amount on demand is greater than the amount supplied and consequences shortages at existing prices. Prices rise until market arrives at equilibrium.
Some of the factors affecting the demand of Apple IPod include income, tastes and preferences, as well as price of related products. There is an excess demand at Apple IPod because the amount on demand is greater than the amount supplied and consequences shortages at existing prices. Conversely, the key factor affecting the supply of Apple IPod is the cost of production.
References
Blackwell, R. (2006). Consumer behavior. Mason, OH: Thomson/South-Western.
Hesseldahl, A. (2005, November 1). I want my video IPod. Bloomberg Businessweek. Web.
Hubbard, R. (2008). Economics. Upper Saddle River, N.J: Pearson Prentice Hall.
Volkmann, C. (2010). Entrepreneurship in a European perspective concept for the creation and growth of new ventures. Wiesbaden: Gabler.