Piper Jaffray's Gene Munster, a retail analyst, conducted a survey in 2007. Prior to the price reduction, he surveyed Apple stores in America over a duration of 50-hours and estimated that around 9,000 I-phones were being sold daily.
When a price decrease of 33% was incurred( from $599 to $399), he was curious to see how the price drop had made an impact on the price. By combining his estimation with Apple's sales, he determined that Apple was selling over 27,000 I-phones on average daily.
He concluded that I-phone 3G sales nearly TRIPLED after a price cut on the phone.
He concluded that I-phone 3G sales nearly TRIPLED after a price cut on the phone.
 |
The price reduction drove hordes of people into
purchasing the phone. That is a whole lot of
CASH earned and a prime example of
PRICE ELASTICITY OF DEMAND.
So ,what is ELASTICITY ?
Out of economics, ELASTICITY generally refers to how much an object is able to stretch and still return to it original shape without breaking after the pressure is removed.
BUT.. in economics it has a whole different meaning and concept
=> It is the measure of the sensitivity one variable has to the change of another variable
One of the more commonly used in ELASTICITY is PRICE ELASTICITY OF DEMAND ( PED )
which is the measure of how responsive the quantity demanded of a good & services is to its change in price.
which is the measure of how responsive the quantity demanded of a good & services is to its change in price.
 |
| Diagram shows a perfectly inelastic demand graph which is not affected at all by a price change and a perfectly elastic demand graph which means even a small change will make a huge impact on the demand of the goods and service. |
The I-phone being a LUXURY goods, is not an essential or a necessity. With that being said it is replaceable with NORMAL goods. This makes Apple's I-phone highly elastic and sensitive to price changes. So, when the price cut was implemented many people took the opportunity to acquire this luxury phone to maximize personal satisfaction with using lesser resources. This is the reason behind the significant increase in DEMAND and SALES after the price cut.
Conclusively, I think it was the right decision for Apple to implement the price cut, as it increase their revenue significantly.
Conclusively, I think it was the right decision for Apple to implement the price cut, as it increase their revenue significantly.
So in CONCLUSION,
A sports car which is a luxury good is ELASTIC.
WHILE
Rice which is a necessity is INELASTIC.
And that summarizes my take on Apple's I-phone increase in demand after its price cut.
Written by :Chang Wei Liang. (0315329)
Reference : http://www.dailytech.com/iPhone+Sales+Triple+After+Price+Cut/article8844.htm
Doing an assignment here and I need your help! Could you help me differentiate between a normal good, inferior good and a necessity ?
ReplyDeleteSure!! A normal good is any good that demand increases when income increases and demand decreases when incone decreases although price of goods is constant. On the other hand, an inferior good is a good that decreases in demand when income increases and are usually low quality goods. Whilst necessities are goods that aren't much by affected by income or a change in price of the goods. Hope I managed to clarify things ! :)
DeleteElasticity is now my favourite topic in economics! You made it simple and easily understandable !
ReplyDeleteAmazing work and well done ! Your posts are my favourite to read! so colourful!
ReplyDeleteCompletely understood your explaination on elastic and inelastic demand. Thank you so much and nice job! But what happens when it comes to a unit elastic demand?
ReplyDeleteA unit elastic demand is when percentage change of quantity demand is equal to percentage change in price . Hope that answers your question! :)
Delete