Economic Insights into Apple Inc and the Economic Trends in Nigeria - Case Study Example

Economics: Writing About a Company & a Country Introduction The objectives of this study are two-fold. The first objective of this paper is to provide economic insights into the demand concept by using practical representation with a company of choice. This paper will seek to analyze the elasticity of the product in terms of demand elasticity, income elasticity, and cross elasticity. The paper will also provide the rationale for the classification of the products from the chosen company in different elasticity. This study examines Apple Inc. and its products. The products of Apple Inc. are diversified but for purposes of this study, we will analyze the different types of elasticity on the phones produced by apple. This study will further analyze the demand and supply concepts of the phones of Apple Inc. and factors which contribute towards the shift in demand and supply. The second objective of this study will focus on the historical, current and future forecast on the GDP, inflation and employment rate in a chosen country. For purposes of this study, we will analyze the economic trends in Nigeria and how the financial crisis of 2008 affected the GDP, inflation and unemployment rate. PART A: Writing about a Company PART A: Writing about a Company The company that I am going to focus on is Apple Inc. (Apple), it was incorporated on January 3, 1977, designs, manufactures and markets mobile communication and media services, personal computers, and portable digital music players, and sells a variety of related software, services, peripherals, networking solutions, and third-party digital content and applications. The company’s products and services include iPhone, Mac, iPod, Apple TV and some other accessories. It can be argued that Apple Inc. operates in an oligopoly type of market. This is because the company is characterized by few producers in the market. And each producer has some control over the market. There is also period where the company has faced intense price competition between rivals such as android. There is also a lot of investment that has been put in research and development to speed up product and process innovation. Products of Apple Inc. fits perfectly to this description, because there is use of patented technologies such as digital rights management to protect Apple’s position. A lot of innovation is encouraged as it was with case of release of the iPhone. Some of the company’s products have been involved with occasional price wars as the main suppliers compete for market share. The product of focus in this study will be an iPhone from Apple Inc. Price elasticity of demand Apple’s iPhone has high demand elasticity. It has a high demand as it is the latest technology with advanced phone features such as the camera and the internet. With the rise in globalization, many people are looking on avenues of connecting with the global world. The iPhone gives many people an opportunity to go digital through a phone. Considering the high price of the iPhone as compared to other phones in the market, a very small proportion of fall in prices will lead to a more than proportionate rise in demand for the iPhone. Many people will be willing to buy the iPhone at a significantly lower price than what the phone is changed currently. This is the reason why the iPhone is able to sell at significantly higher prices with increased demand as opposed to other smart phones which are double less in selling price. The proportion of the income spent by people in buying the phone is high but regardless, people are willing to buy it due to its high quality and features. This shows how elastic the demand for the Apple’s iPhone is. The reason for the high demand elasticity of the iPhone is because it has made life much easier for most people due to its high quality and updating people through the internet which is fast and accessible (Grant, 2000). Income elasticity of demand The iPhone has income elastic since an increase in income will lead to an increase in quantity demanded of Apple’s iPhone. This is because a phone has become a necessity in the daily lives of people nowadays. Everybody has to own a cellphone. With the cellphone rising in class, quality, style and technology advancement, people with large incomes are likely to create more demand for an iPhone while those with low incomes are likely to go for low quality phones. As a result, a rise in income of people earning less in likely to trigger increased demand for the iPhone. This can be demonstrated by the demand of the iPhone in china. Chain has been experiencing an increased in GPD which has increased the purchasing power of the people due to expanded economy. As result, the percentage increase in quantity demanded of the iPhone has been greater than 1. This means that the rise in income leads to a more than proportionate level of quantity demanded. The reason for the high income elasticity of the iPhone is because the iPhone provides major benefits to people and makes life easier as the features of the iPhone are more or less that of a computer (Grant, 2000). Cross elasticity of demand Apple’s iPhone has cross elasticity of demand due to the presence of any substitutes in the market. The iPhone has a positive value considering the many substitutes in the market. As such, the price of apple’s iPhone determines the demand it will attract in relation to the demand of its competitors. An increase in the price of the iPhone will lead to decreased demand for it and increase demand for its substitute phones especially from Samsung. This phenomenon is consistent with the law of demand which attributes high demand for a product to low prices and low demand to expensive products. The reason for the cross elasticity of demand is because an increase in the price renders the iPhone unaffordable to many people yet they there is necessity for the device. Therefore, a rise in price will push the customers to close substitute phones which will offer more or less the same services as the iPhone from apple. Demand refers to the quantity of a commodity that consumers are willing and able to purchase at any given price over a given period of time. The determinants of demand are various; the main determinant of demand that affects Apple iPhone is price (Gould, 1991). When deciding whether or not to buy a particular product an individual will compare the prices of the products with the amount of utility or satisfaction that he/she expects to get from that particular commodity. Apple has set higher prices for their iPhone because the satisfaction that the consumers are prone to get is high. Supply refers to the quantity of a given commodity that a producer is willing and able to sell at a given price over a specific time period. The demand of the iPhone has been very high since its introduction into the market. Apple has been under high pressure in order to match the demand with supply which has been very in sufficient until recently when Apple announced meeting the demand. Causes of a shift in the supply Cost of production; what has really affected Apples’ product is the cost or factors of production. This hinders the company to supply more of the commodities. The prices of factors of production used intensively by the producers of certain commodity rise, so do the firms cost. State of technology; the shift in the supply of Apples product can also be said to be because of the state of technology that is used in the products and also in the company itself (Grant, 2000). The cost of technology used in production of the iPhone affects the supply. Price; an increase in prices of the iPhone reduces the supply since the demand of the iPhone will be down. Causes of a shift in the demand Market size; there is an increased demand for the iPhone such that Apple has had a shortage in supply of the product. This is because the iPhone has been considered by many people as a necessity leading to increase in market size. Price; price affects the demand of the iPhone since it is a highly elastic product. As such, an increase in price leads to a shift in demand downwards while a decline in price causes the shift in demand upwards. Customer preferences; increased in customer preferences for the iPhone has led to increase in demand due to its high quantity and accessibility to the internet. PART B: Writing about a Country As mentioned in the introduction, this part will focus on Nigeria. GDP of Nigeria The historical GDP of Nigeria in the last decade has been calculated based on its economy in 1990. Prior to the 1990, the GDP fell tremendously especially after the Structural Adjustment Programme (SAP) in 1986. This lead to the decline in the fiscal deficits as the government withdrew its incentives in the economy. The Structural Adjustment Programme (SAP) policies had negative consequences on the economy of Nigeria as the Gross Domestic Product (GDP) growth rate decline from 8.3% in 1990 to 1.2% in 1994. The economy of Nigeria recovered and by 2012, it was worth 262.61 billion US dollars. Recently, Nigeria has been reported by the World Bank as the highest economy in Africa with an average Gross Domestic Product of 54.15 USD Billion from 1961 until 2012. The GDP of Nigeria doubled in the 2012-2013 financial year by 89% to reach 80.2 trillion naira ($510 billion) from 42.4 trillion naira previously calculated. The economy of Nigeria is expected to rise in the future due to the inclusion of some of the best performing industries in the market which had not been used before in the calculation of GP. These industries include; information technology, telecoms, music, film production, airlines and online sales (Gbosi, 2007). How the financial crisis of 2008 affected the GDP of the Nigeria The financial crisis of 2008 affected the GDP of the Nigeria as much as it affected most of the African countries. The financial crisis affected Nigeria intensely especially due to its over dependence of its oil sector. This reduced its revenue and earnings from this sector which war further transferred into other economic sectors. The prices of oil rose sharply after the recession and the volatility of prices of most commodities in the market rose. This reduced the earnings of most people leading to a decline in the GDP. Most of the hard hit areas of this economy were; real estate sector, foreign exchange and the balance of payments sector, capital market and the banking sector. The financial crisis depressed the Nigerian economy leading to collapse of investment confidence, deleveraging businesses and consumers and also biting credit crunch. The GDP grew negatively during the crisis time in 2008 and experienced a decline to 6.04 percent in 2008 from 6.4 percent in 2007. Although its strongest sector-oil was very affected by the crisis, the economy was able to rebound immediately after the crisis. The oil sector has declined greatly by -6.19 percent while the nonoil sector declined to 9.01 percent in 2008 from 9.46 percent in 2007. The figure below illustrates the trends in the GDP growth in Nigeria (Nenbee & Dubon, 2009). Inflation Trends in Nigeria The historical inflation rate in Nigeria was not experienced overtly until in 1980s when the country experienced the collapse of oil prices in the 1980s. The Nigerian economy had previously been very dependent on the oil sector as the major backbone of their economy. The oil sector was the main contributor of the GPD and employment of majority of the worker in the country. Thus, the collapse of the oil prices in the 1980s was highly felt by the economy of the country. Consequently, the oil sector could not fulfil the government’s objective of achieving ‘full employment’ since the economy could not sustain it (Mordi, 2009). The major consequence of the collapse of oil prices was the masse lay off of many workers in the oil sector. This coupled with the high prices of oil in the economy led to rapid rise in all the prices of the commodities in the market which resulted on high rates of inflation. At the same time, the naira currency of Nigeria underwent rapid depreciation which escalation the rate of inflation. The working people experienced the problem of the weak currency as the inflation was too high and the wages were very low. It is worth noticing that the inflation rate in Nigeria has risen to highs of 72.8% in 1995. This rise was associated with the activities in the financial markets such as the policy of guided deregulation which propelled the lending rate of money from the financial institutions. Also, the lagged impact of fiscal indiscipline also contributed to the escalated rates of inflation during this time (Mordi, 2009). The economy was able to recover the economy after the collapse of oil prices. Currently, the inflation rate of Nigeria is at 7.80 percent according to the financial records of in March of 2014. The National Bureau of Statistics of Nigeria averaged the inflation rate of the country from the year 2006 to 2014 at 10.33 Percent. The highest rate of inflation was experienced in 2010 and reached a peak of 15.60 Percent. The lowest inflation was recorded in 2006 at the rate 3.00 Percent. The inflation rate in Nigeria is predicted to get lower in the future. This can be evidenced by the recent drop in the inflation rate in the consecutive years in the past. In March 2013, the rate of inflation was 8.6 which reduced to 7.80 percent in March of 2014 (Blas & Wallis, 2014). Unemployment Situation in Nigeria The unemployment rate in Nigeria was highly reduced in 1970 when the country experienced a boom in the oil industry prompting massive migration of people from the rural areas to the urban areas to work in the oil companies and in the industries. However, this boom did not last long as the looming recession caused by collapse of oil prices in the 1980s led to increased rate of unemployment in the country again. Many people who were working in the oil sector were laid off as the industry adopted the Structural Adjustment Programme (SAP). The industry lay off moot of their workers as they could not sustain their wages coupled with the rapid depreciation of the naira exchange rate which limited the capacity to sustain their output levels which could take care of paying the wages and the production costs. Before the crisis, the Nigerian economy was sufficiently able to provide employment to most of their population (Nenbee & Dubon, 2009). The rate of unemployment in Nigeria dropped considerable during the reign of President Olusegun Obasanjo. In 1999, the unemployment rate was 17.5% which dropped to 12.7% in 2007 under President Olusegun Obasanjo. In 2007, the average rate of unemployment was 13.1%. However, the current rates of unemployment in Nigeria seem to be on the rising trend. In 2008, the rate of inflation was 14.9% which rose to 23.9% in 2011 and the forecast predict that the rate of inflation will continue to increase in the same rate till 2020. This trends in associated with the high number of graduates and population increase. Effects of the financial crisis of 2008 on unemployment in the Nigeria The financial crisis of 2008 led to slumping in most the economies in the country. The most hit area was the oil sector which provides most the employment to the Nigerian population. The crisis led to increased rates of unemployment to both men and women in various sectors and the economy could not sustain paying them while the production was facing increased costs of production. The International Labour Organization (ILO)(2009 report indicates that more than 51 million people globally lost their jobs due to the 2008 financial crisis in the world. The financial crisis of 2008 worsened the already deteriorating condition of the unemployed people as the unemployment rate in Nigeria was already very high. In 2007, the rate of unemployment was 12.7% in 2007 and then rose to 14.9% in 2008. The effects of the crisis continue to be felt was the situation was very rapid in 2011 with a rate of 23.9% (Blas & Wallis, 2014). Conclusion This study has successful described the common concepts in relation to Apple Inc.’s products. It has been noted that products are inelastic mostly due to the lack of close substitutes in the market which can affect the demand for Apple’s products. It is also evident that the Nigerian economy has suffered a decline in the GDP and the rise of inflation and unemployment rate as result of the financial crisis of 2008. References Blas, J & Wallis, W. (2014). Nigeria almost doubles GDP in recalculation. Africa Economy. Available at: http://www.ft.com/intl/cms/s/0/70b594fe-bd94-11e3-a5ba- 00144feabdc0.html#axzz31CZoj000 Gbosi, A. N. 2007, The Nigerian Economy and Current Economic Reforms. Ibadan: Olorunnishola Publishers Grant S.J. Stanlake. 2000. Introductory Economics, 7th edition, Sessex: Longman. Gould J. P & Lazear Edward P, 1991. Sixth Edition, Ferguson and Gould’s Microeconomic Theory. Illinois: Irwin. Mordi, C. N. O. 2009. Overview of Monetary Policy Framework in Nigeria. In CBN Bullion 33(1): 1-10. Nenbee, S. G. & P. B. Dubon. 2009, Output-Inflation Relationship in Nigeria: Lessons from the Petroleum Sub-sector, 1980-2007". Journal of Economics, Management Studies and Policy (JEMSAP), 2(1) 17-32. News: The Economist . 2012. Retrieved from http://www.economist.com/news/world- week/21568775-world-year, Financial times. PcWorld.com. 2011. Retrieved fromhttp://www.pcworld.com/article/244607/smartphone_reliability_and_satisfaction_ip hone_tops_the_list.html Salvatore D. 1983. Theory and Problems of micro Economics Theory, Second Edition Singapore:McGraw Hill. Blas, J & Wallis, W. (2014). Nigeria almost doubles GDP in recalculation. Africa Economy. Available at: http://www.ft.com/intl/cms/s/0/70b594fe-bd94-11e3-a5ba-00144feabdc0.html#axzz31CZoj000 Read More