Microeconomics Research Paper

Abstract

In general, supply and demand constitute a price determination model as far as the economy is concerned in a market setup, and they constitute the free market forces. This statement is well understood when one looks at the buyers and sellers of products and checks how they interact. For a company to improve its competitiveness, the goods it offers must be in high demand and large supply. Many factors and various circumstances determine the seller's willingness and ability to churn out goods, as well as sell them. The price of goods is among the factors that determine the amount of produce offered by sellers in the market. The researcher seeks to conduct a study of the factors that affects demand and supply in the Apple Company that is a huge manufacturer and seller of tablets and phones, among many other products.

The determinants of supply include the increase in prices of commodities, technological status/innovativeness, market prediction and management expectations, the price of inputs/costs of the production, the number of suppliers of related commodities, and the government policies (control measures or incentives). On the other hand, the demand is determined by the price variations (reduction or increase), consumers' income/purchasing power, number of buyers/demographics, and the price of related goods and services.

Background

As far as economics is concerned, demand refers to the utility of goods and services of a certain economic entity depending on its income. In most companies, for example, the Apple Company, demand goes up when the price of certain goods, for example, iPhone and Blackberry phones, or services, for example, shopping via their websites, increases (Dixit, & Pindyck, 1994). It is a theory that helps to define or describe the buyer’s desire for a particular good or service. For example, in the situation where a client wants to buy a phone or get the services from Apple Inc., the company has to understand the demand for the product and the rate, at which the product is needed (DiPasquale, &Wheaton, 1996).

In a nutshell, as the price of a commodity rises, it implies that the demand for the same product decreases, and as the price goes down, the demand for the said good or service increases (DiPasquale, &Wheaton, 1996). Firms that produce goods and services, however, should be in a position to meet the demands of their clientele, and it means producing enough products for the market. It is easy to create a graphical representation of supply by simply allocating the dependent variables on the horizontal axis while the independent variables are to be distributed along the vertical axis (Dixit, & Pindyck, 1994).

It is important for managers of companies to base their decisions on the demand and supply mechanisms in order to evade losses and increase profits. Therefore, industries should endeavor to produce the quantities demanded in the market, to avoid lowering the prices. However, companies can engage in the quality improvement and advertising with the aim to manipulate the demand that further necessitates the increased production/supply.

As far as the case study is concerned, there are some goods and services provided by Apple Inc. The company offers a range of mobile communication and media devices, personal computing products, and portable music players (Dixit, & Pindyck, 1994). Majorly, the company offers some goods to people within and outside the company. It trades a diversity of software, services, peripherals, networking solutions, and software products to its customers, depending on their demand and preferences. A research study on the Apple Company has determined the following factors that affect both the supply and demand for the company’s products.

Determinants of the Supply Curve

As far as supply curve is concerned, the change in the input price, taxes and subsidies, technology, producer expectations, price of other goods, and some suppliers are the major determinants that cause a great shift in the supply curve. According to the company’s supply curve, the iPhone is one of the best-selling products, and it is still popular with the customers (Featherstone, 1986). The recent research shows that the iPhone 6 and iPhone 6 Plus are gaining popularity. On the other hand, some factors that increase the cost of production do decrease the supply of goods and services. Moreover, any other factor that might decrease the production cost of a commodity might increase supply (Dixit & Pindyck, 1994). The influencing factors are;

Increased Prices

When the price of goods and services increases, the sellers rake in maximum profits and sell more that leads to the surplus production. If the prices for products increase because of increased demands for the product caused by its high quality, the demand for the product reduces. On the contrary, when two companies produce similar products, and company A lowers the quality, the demand for products from B company increases due to the increased utility (Dixit, & Pindyck, 1994). Another causal factor is the price of related goods, whereby, if company A sells its products at a low price, its demand will increase while demand for company B's high-priced products will reduce (Featherstone, 1986).

Conditions of the Goods and Services Production

The technological status is a critical factor among the factors influencing products supply and demand (DiPasquale &Wheaton, 1996). The technological advancement lowers the cost, as well as increases the volume of goods and services produced; thus, it increases supply. On the contrary, low level of technology leads to low volumes of production and, thus, it is lowering supply of products and services in the market. Because of the advancement in the technology, there can be other variables that might affect the conditions of production. This effect might bring a shift in demand for the product (Featherstone, 1986).

For example, in the case of mobile communication goods, different companies might be greatly competing with the Apple Company, and this issue might compel Apple to embrace innovations that will increase the supply of its commodities. On the contrary, when Apple lags behind in the technological advancement, the supply of its goods reduces as compared to its counterparts engaged in the massive technological development. Because of the modern technology, there is a high competition of phones and software due to variations in the quality and other peculiarities (DiPasquale &Wheaton, 1996).

Expectations of Sellers

In most situations, sellers have great expectations concerning the future market conditions. These expectations can directly affect supply in a sense that, if the Apple Company, as a seller, foresees an increase in demand for its product, the management will deliberately increase the output, and it will lead to the high supply of commodities in the market. The step is inspired by the desire for increased profits; thus, it prompts the surplus production to compete with other suppliers (DiPasquale &Wheaton, 1996).

Price of Inputs Affects Supply of a Company

In most companies, inputs include labor, land, energy and raw materials, among other requirements for the production process. In the case the price of inputs increases, the level of supply will reduce due to the decreased production as a result of the inability of the producer to sell goods at any given price due to the increased losses (Dixit, & Pindyck, 1994). For example, a seller (the Apple Company) might be forced to reduce the supply of its products, for example, the iPhone, iTunes, and iPod, among other products, because the price of them can increase, thus, increasing a cost of production.

The Number of Suppliers

The number of suppliers affects the supply of a commodity, in the sense that, if the Apple Company has different numbers of suppliers in different regions, this situation will provide the company with a better chance to increase its supply because demand will go high. The reason is that the company will acquire some customers that will value its products. Nevertheless, if there are different suppliers of the same product from different companies, it will be extremely challenging for the Apple Company to market its products effectively (Beck & Webb, 2012). The more players enter the industry, the more the market supplies increase. In this case, prices for the products will be driving down.

Government Policies and Regulations

The government largely contributes to the supply of products to a company. Its interference affects the supply of products either negatively or positively (Bevan & Estrin, 2004). For instance, increased taxation and regulations lower the production while subsidies increase the production of goods and services. The government may adopt policies on an electrical hour and the minimum wage requirements, regulations about the environmental and health matters, taxes, and natural gas usage and fees. For instance, in the case of the Apple Company, higher taxes on products increase the costs of production. When such policies affect the costs of production, companies change their supply decisions by lowering the production (Beck & Webb, 2012).

The Determinants of Demand

Among the determinants are income; tastes, and preferences; a price of substitute goods and services; customers' expectations about the future prices and incomes that can be checked; and some potential customers (Dixit, & Pindyck, 1994). Most customers like and appreciate the Apple Company for its quality products, for example, the iPhone, iPad, Mac, iPod, iTunes, iCloud, and other application software. This influence has made the company increase its supply due to increased demand for the products and services (DiPasquale, &Wheaton, 1996). The determining factors are;

Price Variations

When the prices of goods change, the situation affects the demanded quantity of the same product. This change will also be seen in the demand curve when drawn to the latter (Bevan & Estrin, 2004). According to the law of demand, if the price of the good increases and other factors remains constant, the volume of the demanded goods will reduce. By saying that everything else remains constant, it means that other factors that influence the demand, for instance, the earnings, wealth, prices of substitute goods, and compliments, as well as population size and the tastes, do not change.

Consumer’s Income

Income of a person determines the disposable funds available to an individual, and it affects demand for a product. When there is an increase in a person's income, the individual’s demand for goods and services also increases due to the increased purchasing power. On the contrary, any fall in individual’s income will cause a decrease in demand for certain goods or services (Beck & Webb, 2012). Simply put, the goods, the demand for which inversely depend on person’s income, are called inferior. Another factor is consumer preferences, which varies from one place to another.

Number of Buyers

A favorable change in the number of buyers might lead to a rise in demand for a product while unfavorable change might lead to the reduced demand. This variation, therefore, affects demand for a product either negatively or positively (Beck & Webb, 2012). The number of buyers can also affect the demand system of a company. For example, in the case of the increased or huge number of buyers, the demand for that particular product will increase. In turn, this situation will cause a decrease in demand for a certain product; thus, the selling will also decrease (Beck & Webb, 2012).

Price of Related Goods

The price of substitute goods affects demand for a product can in one way or the other. In this situation, a seller is urged to substitute goods in the sense that, in the situation where there is a limited supply of a product, those goods that be used as substitutes to replace the scarce commodities (Bevan & Estrin, 2004). Without substituting, the situation will greatly affect the demand for a product. In other words; there is a direct relationship between the price of a substitute good and demand for another product (Featherstone, 1986). For example, if the price of a certain product increases, demand for the other related product/substitute product should also increase. This increment aims at balancing the demand for the two products. In such situations, goods can be complemented and used together so as to balance the demand. The price of the complement product and demand for other goods should also be inversely related (Beck & Webb, 2012). The price of good complementary A and demand for the related complementary good B should be inversely related because the two products try to serve the same purpose.

Conclusion

To conclude, these determinants of supply and demand can in one way or another affect the company either negatively or positively. Every entity wishes to have a favorable market environment characterized by high demand for its goods coupled with the high supply of the same that allow selling more and raking in more profits. Among the factors that affect the Apple Company’s supply, there are an increase in the prices for commodities, technological status/innovativeness, market prediction/management expectations, price of inputs/costs of production, number of suppliers of related commodities, and the government policies (control measures or incentives). On the other hand, demand is determined by the price variations (reduction or increase), consumers' income/purchasing power, number of buyers/demographics, and price of related goods and services. Therefore, the company should establish the optimum point of production that will minimize the costs and increase profitability, to remain competitive in the market.