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This report describes the micro- and macro- economic analysis of Apple Inc. and one of its main products the Iphone. Apple Inc. is a well-proven company, which is engaged in production of computers, phones, software and many other types of electronics. The company was founded by Steve Jobs and Stephen G. Wozniak in Cupertino/ California in 1976 (Dougherty, 2010). “By selling 8.8 million handsets in the first quarter of 2010, the Apple Iphone has become the most widely sold mobile phone in the US” (Samra, 2011).
Introduction………………………………………………3
Microeconomic analysis
Demand and Supply factors of the company’s sales and profitability…………………………………………………..3-4
The market structure of the company………………………….4
Elasticity concepts of the company…………………………4-5
Efficiency of the Apple’s Inc resources……………………......5
Macroeconomic analysis
How economic growth influences Apple Inc………………...5-6
The connection between the unemployment and Apple Inc…...6
The impact of inflation on Apple Inc...………………………..6
Balance of payment………………………………………….6-7
Business cycle………………………………………………….7
Conclusion………………………………………………..8
Bibliography……………………………………………..9
TERM 2
Economics assignment
Economic Analysis of
Apple Inc.
Product: Iphone
Words number: 1487
London, 2012
Contents
This report describes the micro- and macro- economic analysis of Apple Inc. and one of its main products the Iphone. Apple Inc. is a well-proven company, which is engaged in production of computers, phones, software and many other types of electronics. The company was founded by Steve Jobs and Stephen G. Wozniak in Cupertino/ California in 1976 (Dougherty, 2010). “By selling 8.8 million handsets in the first quarter of 2010, the Apple Iphone has become the most widely sold mobile phone in the US” (Samra, 2011).
2.1 Demand and Supply factors of the company’s sales and profitability.
Apple Inc. has been a global leader as well as an innovator in the technology sector of the market. Since the moment of the company's creation the demand for its products was low. However, over the last 10 years the company has seen a significant increase in the demand for its products and service. There are many factors which affect on shifts in the demand for Apple's computers and digital products. One of the most important factor is the price, initially founders of the company wanted to create a computer relatively affordable to everyone. In comparison of the company's price and its competitors’ prices we can not see significant variance, but if considering all Apple's Inc. loyalty facilities and technical innovations, there is a quite difference. As well as a small number of substitutes of these gadgets, allows the company to retain the demand at a high level. In addition, the popularity of the Apple's brand name is increasing. Its logo and name is world-recognized, which attract customers to buy this particular brand. With regards to supply side, the company will always experience a shift in the supply curve when a price change happens for both raw materials and production. The government policy and reports of international organizations, such as the Greenpeace, have the ability to cause a shift in supply, because if European authorities intervene it can limit the amount of products in distribution.
2.2 The market structure of the company.
There is a statement that Apple's iPod market is a vertical monopoly, whereas the Iphone can be considered as oligopoly (Riley, 2009). A vertical monopoly is where one company controls all aspects of the production and distribution of a product. Though the iPod is not a company on its own, the item held a dominant market position. Oligopoly is when the market is dominated by a few enough firms to enable barriers to be erected against new firms’ entry (Sloman, 2010). This is acceptable for the Iphone because it competes with several large phone companies including Samsung and Nokia. Despite this competition, one year after the release of the Iphone, Apple Inc. had become the third-largest mobile supplier in the world (Slivka, 2012).
To continue to operate in this profitable market, the company should continuously update their products and maintain an active advertising and price policy.
2.3 Elasticity concepts of the company.
All products of this company have elastic demand. Since these items are luxuries, not all people can afford them, and they are not necessary need them. So the quantity demanded changes by a larger percentage than price.
As for price elasticity of supply for Apple Inc. it is also elastic. As according to Sloman (2010), the less the additional costs of producing additional output, the more the company will produce for a given price rise: the more elastic supply be. It can be proved by the economies of scope concept. When creating a new class of the goods, the company used the previous technological basis with addition of some changes, which significantly reduces the cost of production.
In addition, the high income elasticity of demand appropriate for the products of this company. As when considering the Iphone market is mainly developed countries, the demand for such luxury goods expands rapidly as people's income rise (Sloman, 2010).
2.4 Efficiency of the Apple’s Inc resources.
According to Forbes.com (2012), the company’s current and quick ratios equal to 1.6 and 1.3 respectively. These data let us know, that Apple Inc deal with its short term liabilities successfully, which means that the company use resources efficiently. As well as a small difference among ratios considering the small amount of stock, this concludes that Apple use its assets efficiently, determining that stock is least liquid asset.
In addition another factor of efficiency is a constant training and skills improvement of its staff. This factor may impact positively on continuous update of the company's products.
3.1 How economic growth influences Apple Inc.
Economic growth can be defined as a positive alteration in the level of goods and services production by a country over a certain period of time. Constant economic growth should lead to a higher living standards and increase in employment. The higher the living standards the better a company performs, because people will be able to afford more expensive goods. Therefore, this may have a significant impact on demand for the products of Apple Inc. Especially during the world economic growth; exports of the product will grow and will greatly improve the indicator of aggregate demand as it is an integral part of it.
3.2 The connection between the unemployment and Apple Inc.
Pursuant to Gellar (2011), if there is one industry that will be less affected by the U.S. unemployment problem, it is probably technology. The key here is that companies like Apple do not rely on a strong labor market to be competitive. But on the other hand, if the world rate of unemployment will rise, consequently the number of buyers will decrease. As people without job will not be able paying for the goods, especially for luxury items as Iphone.
3.3 The impact of inflation on Apple Inc.
Inflation is a general and progressive increase in price level of goods and services. It has a great impact on the company’s operations. For example, with inflation raw materials for the goods will costs more, or employers will demand to raise salaries, and other costs of production will also increase. Consequently, the price of Apple's products will be adjusted for inflation, which in turn will lead to a decline in demand.
3.4 Balance of payment.
Balance of payment is a system of recording all of a country's economic transactions with the rest of the world over a period of time. Discussing the global balance of payment, there is a main point of this topic relates to the exchange rates between the countries. Today the rate of the dollar isn't quite stable; its significant fluctuations have a strong effect on the sale of the Apple Inc. According to Muller (2009), a weaker dollar implies higher product costs since Apple sources components and manufacturing outside the U.S., specifically Asia. However, the negative impact of a weaker dollar in terms of product costs is much less than the benefit of higher ASPs in USD terms. This is because: 1) costs are a less in percentage of overall selling price 2) Apple enters into long-term supply agreements and also has considerable leverage over suppliers 3) China’s currency is fixed to the USD as it prefers a weak currency to maintain exports.
3.5 Business cycle.
“The business cycle is the periodic but irregular up-and-down movements in economic activity, measured by fluctuations in real GDP and other macroeconomic variables” (Moffatt, 2012). The business cycle phases affect all the companies, including Apple Inc. For example:
Expansion Phase: The economy is strong, people are employed and earn money. Demand for goods will rise to the point where it outstrips supply. This demand boosts a rise in prices, or inflation.
Prosperity Phase: when prices increase, people ask for higher salaries. A higher employment cost translates into higher prices for goods and create an upward spiral effect.
Contraction Phase: When prices are booming, consumers and companies decrease their spending, as goods and services are too expensive. This reduces demand. Due to lower demand, companies can decrease costs by reducing number of employees.
Recession Phase: Lower demand generates declining in prices, GDP, and rising unemployment. The situation when the economy is in a recession.
Expansion Phase begins again: Lower prices eventually, form a growing demand. As demand picks up, people begin buying again, requiring greater supply, new jobs and a growing economy.
Summing up, Apple Inc. has a fairly strong position in the market, despite the current fluctuations in the U.S. economy. My choice was the iPhone is not in vain, as with every new release of the phone, the company attracts more customers and becomes popular. As the young generation interested in the latest technologies, the demand and supply of Apple products will remain at a high level for a long period. This in turn will have an impact on the macro-economy of the country, and with the expansion of the company at the international market also will have an influence on the world economy.
Bibliography
http://www.brighthub.com/
http://www.brighthub.com/
Appendix
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