Equilibrium Price of Mobile Phones - Coursework Example

Economic analysis helps businesses to understand the different aspect of demand and supply and take decisions based on it. Businesses looking towards growing their business look towards analyzing the demand the supply of goods in the market and based on it identify the amount of good that should be produced, the price that should be charged and all other factors that could have an effect on decision making of either the supplier or the buyer. The mobile phone industry is an example in this direction which highlights the manner in which the equilibrium price is determined by the market based on the demand and supply of the product. The paper thereby looks to explain the manner the equilibrium price of mobile phones is determined in the market and the manner the demand and supply plays on it. The paper also looks to present the different factors which bring about a shift in the curve and the manner equilibrium price is determined. This makes it important to understand the concept of demand and supply. Demand is defined as the total amount of mobile phones that the customers are willing to purchase from the market at a stated price (Colell, Winston, Michael, & Jerry, 1995). Supply on the other hand is defined as the total amount of mobile phones that the suppliers are willing to sell in the market at a stated price (Colell, Winston, Michael, & Jerry, 1995). An important aspect here is that both demand and supply is determined at a particular price. Another important factor is that demand and supply has an inverse relationship thereby making the curves intersect at a particular price and quantity (Garg, 2010). The equilibrium price of mobile is thereby determined by the intersection of the demand and the supply curves which is shown below It is evident that the quantity demanded is Q1 at the price 6. Manufacturers have to look towards ensuring that the equilibrium price determines the amount of quantity that the supplier is willing to manufacture. This helps to clarify the concept that demand curve slopes downward and factors affecting the demand and the supply curve results in the equilibrium price and quantity to be determined (Shepherd, 2006). Now, when the manufacturer of mobile phones look towards reducing the supply of mobile phones as the cost of input is rising it will result in a change in equilibrium price and quantity as shown in the graph below (Demand, 2011). The above graph shows that the decrease in supply due decrease in production as the cost of input has increased results in the supply curve to shift to the left signifying decrease in supply. (Garg, 2010) The demand has remained the same as seen by the demand curve. This has resulted in the price of lobster to rise from Ep1 to Ep2 and a decrease in supply from Eq1 to Eq2. This brings forward to the fact that the supply of mobile phones gets altered due to factors which firms have no control (Shepherd, 2006). This makes it important that the organization is able to identify those factors and ensure that they are able to gain advantage due to it. Thus factors other than price have an effect on the supply and demand and firms need to identify it and predict supply and demand accordingly. Businesses that are able to understand the manner in which the demand and the supply curve will look like are able to charge correct prices for the product thereby ensuring maximum customer satisfaction (Docters, Schefers, Korman & Durman, 2008). Despite the changes in the prices of products there are various other factors which also have an influence on the shift in the supply curve. The changes in supply happens due to various factors like Change in cost of production. For example, if the cost of mobile parts increases then manufacturers will be willing to supply lesser products at the same price Change in price of substitute. For example, if the price of substitute for mobile like telegram, internet messaging increases then it will increase the supply of mobiles as customers will be willing to move towards mobile Change in tax structure. For example, reducing the tax rate will make the cost associated with the mobile phones to be less which is likely to make the suppliers supply more mobiles at the same price Change in firms’ objective. For example, the mobile phone manufacturer looks towards increased penetration might result in lowering the price of mobile thereby making the manufacturer a wider market Future expectation of demand. For example, supplier expects that the price of raw materials will fall then it is likely to sell its product even at a slightly lower price as further reduction in cost will reduce the margin for the manufacturers. Similarly the demand curve for mobiles also moves due to various factors which have been shown below (Hartkemeier, 2005) Change in Income: brings about a change in demand for mobile phones in the market (Demand, 2011). For example when customer income rises then the customer is willing to spend and purchase the latest mobiles which will thereby make the demand curve to shift Change in price of other goods: brings about a change in the demand for mobiles. For example, when the prices of internet, telegram, courier and other similar things increases it will result in the customer towards using more mobile phones thereby increasing the demand for mobiles thereby causing a shift in the demand curve Change in population: brings about a change in demand. For example, a growth in the younger population will lead towards an increase in the demand for mobile phones thereby making the demand curve to shift Change in future expectation: about the price that the customer perceives in the future will have a bearing on the demand curve. For example, if the customer expects that the prices of mobile phones are likely to increase in the future then he will purchase the phone thereby making the demand curve to shift. Change in taste: also has a bearing on the demand curve. For example, the growing preference of customer towards mobile phones will lead towards an increase in the demand for mobile thereby making the demand curve to shift. This makes it important to understand the importance the elasticity of both the curves i.e. the demand and the supply curve as it will help to determine the price and quantity at the equilibrium point. Elasticity of demand helps to determine the total revenue and price that the business will be able to generate thereby having an impact on all the stakeholders (Rizzo and Blumenthal, 1994). The following graph shows that a change in price affects the quantity supplied and the quantity demanded. It is evident from the graph below that as the demand increases from D1 to D2 it increases the demand which leads towards an increase in supply which thereby transforms into higher price and quantity. Elasticity here has an important role as the magnitude of movement in the demand and the supply curve is determined by the elasticity of the curve. The movement to determine the equilibrium price and quantity is thereby dependent of the elasticity of both the curves. Income elasticity determines the change in demand due to change in the income or the real purchasing power of the customer. (Rizzo and Blumenthal, 1994) Business units look forward to integrate this elasticity in their formulation of future plans so that they are able to better understand the market. The graph for the income elasticity appears as follows The price and income elasticity for agricultural foods in Australia has little relevance. As the country is developed so changes in income have little or no effect on the demand for mobile phones. Thus, there are various factors which bring about a change in the demand and supply curve and the equilibrium price and quantity is determined by the relative elasticity of each curve. Businesses needs to identify these factors and look towards ensuring that they are able to understand the manner in which the demand and supply gets affected so that steps can be taken to ensure that they are able to garner maximum benefit. The paper thereby present the manner in which the demand and supply of mobile phone gets affected due to various factors. It also presents the different factors which has a bearing on demand curve and stresses the importance of identifying the factors to be able to plan better and improve the overall efficiency in the management process so that better decisions can be arrived at. References Colell, M., Winston, A., Michael, D. & Jerry, R. 1995. Microeconomic Theory. 3rd Edition, New York, Oxford University Press, Pearson Education Docters, R., Schefers, B., Korman, T. & Durman, C. 2008. The neglected demand curve: how to build one and benefit. Journal of Business Strategy, Volume 25, issue 5, pp. 19-25 Demand. 2011. Factors Affecting Demand. Retrieved on November 11, 2011 from http://www.econport.org/content/handbook/Demand/Factors.html Garg, S. 2010. Microeconomics: Introductory. 7th edition, pp 3.11-9.17, Dhanpat Rai Publication Rizzo, J. and Blumenthal, D. 1994. Physician Labour Supply: Do Income Effects Matter. Journal of Health Economics, Volume 13, Issue 4, pg 433–453 Shepherd, G. 2006. Vertical & Horizontal Shifts in supply curve. The Econometric Society, Volume 4, No. 4, pp. 361-367 Read More