Mba502 Apple: Microeconomics Milestone one

Apple:  Microeconomics Milestone One

Michelle M. Escobedo

MBA 502 Economics

Southern New Hampshire University

March 26, 2019

Apple

I.  Overview

The company I have chosen for the microeconomics analysis paper is Apple Inc.  The history of Apple is 40+ years in the making.  From its modest start in 1976 with the Apple I, to now with the multi-billion-dollar conglomerate, this success story is parallel to an innovative fairy tale.   Following the beginnings of Mattel and Disney, Apple first started in the garage of Steve Job’s adopted parents.  “One of their first big orders was from a local retailer who ordered 50 computers at $500 apiece, which they were able to produce in just 30 days.”  (Giang 2014) Today a MacBook’s prices are in a range from $1099 to $4999.  The success that Apple Inc has is in large part to the dedication of the up to 2 million employees, suppliers and App Store contributors.  

Apple isn’t the company it was 43 years ago.  Today Apple’s products range from computers to smartphones to smart televisions.  “Since the launch of MacBook in 1998, growth in employees in the United States alone is a massive 1500% and that number will continue to grow with the success of Apple and its products.”  (Apple 2017)   Although earnings declined 15% in the 4th quarter of 2018, Apple still earned $84.3 billion dollars in revenue last year, which puts them at #4 of Forbes fortune 500 companies.  

II     Supply, Demand and Market Equilibrium

 A.  Elasticity

        For the MacBook Pro, how does the change in price affect the quantity demanded.   Apple has a loyal market base and though Apple’s prices are higher than the average PC, it is that brand loyalty that keeps Apple at the forefront of the tech world.  “Elasticity is a measure of a variable’s sensitivity to a change in another variable.”  (Kenton 2019) The demand elasticity of demand of the MacBook is a positive one.  If the price of the MacBook would decrease, Apple will more than likely inherit a new customer base.  This is again due to the popularity of Apple and its products.  If the price point were to increase, sales would more than likely stay the same or slightly decrease.  Historically, it hasn’t mattered whether Apple raises their prices or not.  Once consumers have purchased the MacBook, there is little that would get them to switch back.  Therefore, the assumption is that the MacBook is inelastic since the increase in price wouldn’t truly affect the demand of this product.  Apple has kept its products similar from one to the next.  Taking the iPhone for example, the basic design stays the same, because people like it.  We are officially up to the iPhone X and a new model comes out yearly.  The MacBook Pro was originally released with that same name in 2006.  It was a popular machine in so that individuals and organizations alike wanted to have it.  As with older technology, it was bulkier and more expensive to make.  Now the MacBook has a slim sleek design that looks no bigger than a notebook.  The popularity of this product helps keep the price inelastic and in line for new upgrades to both hardware and software.  People feel justified in paying slightly more for a product that has not failed them yet.  

B.  Nonprice Factors –Demand

          1.   There are nonprice factors that would affect the demand of the MacBook Pro.

One of those factors would be personal preference.  In today’s society, changes in mood and preference is very common.  In the world of technology, it is more so.  Because tech is ever evolving, one could simply say that they will no longer want a ‘laptop’ looking device and maybe just want a tablet for easier portability and storage.  That decision has been made in my household several times, both to and from a tablet.  Once the ‘grass is greener theory’ is tested, it is either accepted or rejected.  If accepted, then sales of iPads would increase, and a slight decrease in MacBook sales would happen.  If it is rejected, then the iPad market would stay steady and the MacBook market would more than likely see a slight increase in sales.  There is no accounting for personal preference, but it is a definite factor.  

           2.   The second nonprice factor for demand would be that of income.  In an income positive economy, sales of any kind will be positively affected.  Our economy heavily relies on people’s livelihoods being positive and prosperous.  For example, having less taxes increases spending.  “A tax decrease will increase disposable income, because it leaves households with more money.”  (Gorman 2003) When households have more money, they spend it on things that they don’t necessarily need but want to have.   This is the case for most normal goods.  Mutually, income and demand are directly linked.  There will still be a high demand if income decreases, because of its high-end prices.   “Apple has never made cheap stuff.  But this fall many of its prices increased 20 percent or more. The MacBook Air went from $1,000 to $1,200.” (Fowler & Van Dam 2018)   With the addition of AirPods and other accessories, Apple can become unaffordable very quickly to those who have limited disposable income.  

C.   Nonprice Factors—Supply

          1.   One of the nonprice factors of supply is simply the size of the market.   We know that the tech industry is booming.  If a product is created to rival the existing product then it is feasible that demand of those goods will decrease thus decreasing the quantity supplied.  Apple has many rivals and they have all fallen short of taking the tech giant down.  There are several companies out there like LG and Samsung that are getting dangerously close to directly affecting both sales and quantity supplied.  Rivaling the AirPods, Samsung now has a Bluetooth ear pod that has deemed itself superior in quality and functionality and still less expensive than Apple’s AirPods.