Demand and Supply for Mobile Phones - Assignment Example

DEMAND AND SUPPLY FOR MOBILE PHONES 14th, November, Controversy in Demand and Supply of Mobile Phone Market The demandfor mobile phones has been on the increase in recent years due to various reasons related to increase in demand and supply. An increase in demand for a product results when buyers have the will and the ability to purchase a good or a service at the stated price. This causes a shift to the right of the demand curve. For there to be an increase in demand of a product or a service, various determinants of demand have to experience a change that results to the increase. This in turn causes the equilibrium and an increase in price of the product (Research and Markets 2012). However, in the mobile phone market, the demand for mobile phones increases as the price of the mobile phones decreases. This can be attributed to various reasons. Begg et al. (2011) notes that, for there to be an increase in demand, there have to be a change in one or more of the demand determinants. An increase in demand will in turn cause a shift to the right of the demand curve. When there is a shift to the right of the demand curve, the markets equilibrium will be disrupted thus causing a temporary shortage of the product being demanded. The temporary shortage created is eliminated with an increase in price of the product. However, in the mobile phone industry, there has been an increase in demand and a decrease in their prices. This can be attributed to various factors (Research and Markets 2011). Sloman & Garratt (2010) posits that an increase in demand of mobile phones can be caused by an increase in buyers’ income. When the level of income of the buyer increase, the buyer gets more money to spend on a certain commodity, which they are interested in. this happens when there is an increase in the income for a normal good. Moreover, an increase in demand for mobile phones can be attributed to a decrease in income of the buyer for an inferior good. Moreover, an increase buyer’s preference on mobile phones against other communication gadgets has caused a shift in the demand curve for mobile phones. Mobile phones are preferred since they are easier to use and results to instant feedback as compared to earlier means of communication such as letters. Moreover, mobile phones are preferred since they are cheap to afford as well as offers flexible means of communication (Mobile Promotions Market 2012). Mobile phones have gained consumer confidence in that the advanced systems allow the user to make audio-visual calls. Furthermore, mobile phone industry has experienced a boom in sales due to inflexibility of its competitors. For instance, while comparing the performance of communication via the internet, you find that the user will have look for internet access, which is not readily available to everyone. This makes it easy for the mobile phones industry to grow as compared to its potential competitors (Lee & Farahmand 2008). According to Parkin, Powell & Matthews (2011), a growth in demand for mobile phones can be attributed to mobile phones exceeding buyer’s expectations. Smartphones have made it easier for their user to communicate as well as do other activities that were previously not available in older generation mobile phones. In addition, an increase in mobile phone purchase kin the market is largely due to an increase in the number of mobile phone users in the market. Due to their availability, flexibility, and advanced level of technology used in them, more people are resulting to use mobile phones over other means of communication such as voice over internet protocol (Sakun & Chee 2011). According to Xrayser (2011), demand and supply for mobile phones in the market can also be attributed to the size and structure of the population of the targeted market. Different markets dictate more the price and the quantity to be demanded of a commodity than other markets. For instance, Apple has resulted to market segmentation whereby it has preferred the US market to other markets due the level of demand of its product in that country. The amount of sale of Apple products in US far exceeds the amount sold in other countries. The US market also provides a large market for the company’s product due to its large population and high income levels of its residents. Salmi & Sharafutdinova (2008) notes that, Increase in sales of mobile phones in the market can be attributed to an expansion in private expenditure increase for the aggregate demand in the economy. When there is good business prospects, the entrepreneurs start investing extra finances in new businesses, thus increasing the demand for influencers of production. The result is an increase in factor prices. The greater than before factor profits, increase the spending on consumption goods. The growth of mobile phone industry can also be attributed to reduced taxation on the phones produced. This measure has contributed greatly to an increase for mobile phones sold in different countries. Moreover, reduction in taxation has contributed to an increase for revenue for different mobile phone manufactures. For instance, developing countries such as Kenya has zero-rated tax on import of all consumer electronic gadgets such as phones and laptops whereby it have contributed towards an increase in demand and supply at the same time. Reduction of taxes by the government increases disposable income to its citizens that in turn raises the level of demand for goods and services (Hawver 2011). Dickson (1999) posits that, the increasing population in the world can also attribute increase in demand for mobile phones. The rapid growth of population in the world has increased the aggregate demand of mobile phones in the economy. This is because of the increased consumption, increased venture, government spending, and net foreign expenditure. Increased expenditure in a country that results in increased purchase of phones can also be attributed to the government paying off its debts. When the government pays off its debts to its people, it increases the amount of money circulating in the economy and hence an increase in purchasing power to the public. This means that the money provided will be used to buy more goods and services for consumption purposes, therefore increasing the aggregate demand in the economy (Research and Markets 2007). Lee & Farahmand (2008) asserts that, lack of limitations in manufacturing of mobile phones and lack of regulations in the markets has enabled the mobile phones market to have a perfect competitive market. This means that all market participants are equal enough to have the power in the market to dictate their prices in the homogenous products. However, there are few or no perfectly competitive markets due to the strict conditions in perfect competition. These markets are characterized by infinite number of buyers and sellers, limited or no entry barriers, perfect factor mobility, perfect flow of information in the market, limited or no transaction costs, high volumes of profit maximization, non-increase on returns to scale and provision of property rights (Zuckerman 2006). When a determinant of demand changes, such as an increase in the level of income of the buyer, will allow more consumers of the commodity to buy the goods and therefore demand curve will shift to the right from point D1 to point D2. Secondly, a shift in preference of mobile phones over other means of communication such as letters and internet causes the demand to shift to the right from point D1 to D2. The shifted curves will in turn disrupt the level of market equilibrium therefore causing either a surplus or a shortage. In this case, an increase in demand of mobile phones causes a shortage and therefore a need for more production of phones into the market. While buyers are now willing and able to buy phones at the existing market price, suppliers continue to supply the same quantity to the market. This cause the equilibrium price, to shift to a higher position in the new demand curve. However, in the mobile phone industry, there is a difference in the effect of oversupply and demand on the price of the products. Mobile phones are turning to be goods of ostentation thus defying the rules of supply and demand. This occurs in that, when a new product is released into the market, it tends to attract many buyers at the stated price. However, when a more advanced phone pops into the market, the demand for the previous mobile phone decreases instantly. This triggers an instant decrease in the price of the commodity and an immediate cease in production of the mobile phone by the producers. For instance, a mobile phone manufacturing company such as Blackberry-ceased production of low-end market phones due to availability of cheap high-end mobile phones from the company competitors such as Samsung and HTC (Research and Markets 2012). Variations in the amounts demanded and supplied both act to exclude the market disequilibrium. In the mobile phone industry, an upsurge in the quantity supplied and a reduction in the amount demanded remove the shortage. This means that the price of these mobile phones will continue to change with the provision that the market is imbalanced with a shortage. The new equilibrium price created at the interjection of point P2 and Q2 that is higher than the previous equilibrium price of point P1 and Q1. Works Cited Begg, D., Vernasca, G., Fischer, S & Dornbusch, R 2011, Economics, McGraw-Hill: New York. Dickson, F 1999, "Supply/demand ratio: At what price?” Electronic News, vol. 45, no. 23, pp. 18-18, 22. Hawver, M 2011, “The Domestic Surplus Market: the Demand is there what about Supply, Cygnus Business Media, Elizabeth: California. Lee, E & Farahmand, K 2008, "Impact of Demand Variability on Supply Chain Performance,” IIE Annual Conference. Proceedings, pp. 1338-1343. Mobile Promotions Market, 2012, Mobile Advertising and Interaction Industry Analysis for Consumer Enabled Product Authentication with Smart Phones, PR Newswire: Dallas. Parkin, M., Powell, M. & Matthews, K. 2011, Economics, Pearson: New York. Research and Markets, 2007, “New Report Gives Five Year Forecasts for the Mobile Phones Market in France,” Wireless News, pp. 1. Research and Markets, 2011, Mobile Phones - Top 5 Emerging Markets Industry Guide, Wireless News: New York. Research and Markets, 2012, Mobile Phones in Canada: leading players, market analysis, growth trends and more, Investment Weekly News, pp. 127. Sakun B & Chee, Y 2011, "The moderating effects of technological and demand uncertainties on the relationship between supply chain integration and customer delivery performance", International Journal of Physical Distribution & Logistics Management, vol. 41, no. 3, pp. 253-276. Salmi, A & Sharafutdinova, E 2008, "Culture and design in emerging markets: the case of mobile phones in Russia", The Journal of Business & Industrial Marketing, vol. 23, no. 6, pp. 384-394. Sloman, J & Garratt, D 2010, Essentials of Economics, Pearson: New York. Xrayser, 2011, "The new laws of supply and demand,” Chemist & Druggist, pp. 12-n/a. Zuckerman, A. 2006, "What Business Leaders Need to Know About: High Tech for Demand-driven Global Supply Chains", World Trade, vol. 19, no. 1, pp. 42-44. Read More