Demand and Supply Relationship

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Table of Contents
1.0 Introduction
2.0 Analysis
3.1 Demand and Law of Demand
3.2 Determinants
3.3.1 Demand
3.3.2 Supply
3.3 Elasticity
3.4.3 Determinants of Price Elasticity Demand
3.4.4 Determinants of Price Elasticity Supply
3.4.5 Price Elasticity of Demand
3.4.6 Income Elasticity of demand
3.0 Conclusion
4.0 Reference List

1.0 Introduction
This is a good perceptive article written by B.K. SIDHU, titled “Digi entry in mid-year may spark iphone price war” and was posted on 2 March 2010. It discussed about the launching of iphone by Digi. Com Bhd., the Malaysian mobile phone company which was controlled by Norway’s Telenor and the price war on service and packages in the smartphone market. Digi thinks they will increase sales more than 5% this year because of the demand of iphone had been increasing.

This assignment will focus on the demand and supply of the iphone and the determinant of the demand and supply will be further explored. Furthermore, this assignment aims to analyze the price elasticity of iphone.

2.0 Analysis
3.1 Demand and Law of Demand
Demand indicates the quantity of goods that the consumer is willing and able to buy at a given price during a particular period of time. Consumer refers to individual or household. Individual demand refers to a particular person, whereas market demand and total demand refer to the whole market consumer.

Holding everything else constant, suppose the initial price is P0, the initial quantity is Q0, when Digi enters the iphone market, there is an increase in supply which switch the supply curve from S1 to S2. The price of the service and package will decrease to P1, causing the quantity to increase to Q1. The law of demand states that: “Holding everything else constant, an increase in price will cause to a decreased in quantity demand; whereas a decrease in price, will lead to an increase in quantity demand.” (Garnett. 2010, 65). There had a negative relationship between price and quantity. Hence, P1 will be the new equilibrium price and the new quantity will be Q1.

3.2 Determinants
3.3.1 Demand
A. The demand of iphone will increase is due to the consumer shifting their taste in the market. Consumers are preferably switching their taste to iphone because of the appearance and the multi-function of iphone. They are easily attracted by the new packages and services of iphone. B. An increase in consumer income will also increase the quantity demanded of iphone. If someone expects his or her income will increase in the particular period in the future, he or she will increase their quantity demand of the iphone. Hence, they will buy iphone via the service and package of the Maxis Com Bhd and Digi Com Bhd. It is because their purchasing power will increase so they can afford to buy it. Iphone is a normal good so when an increase in income will lead to an increase in quantity demand of iphone.

Therefore, the popular demand of iphone has caused the demand curve shift to the right, which is from D1 to D2.

3.3.2 Supply
A. The entry of Digi into iphone market, a change has caused the number of supply in the market. An increase in the number of suppliers will increase the quantity of suppliers of iphone. B. Maxis Com Bhd and Digi Com Bhd will improve their service and cheaper their package to attract more consumer. The price of iphone will decrease following the trend and fashionable.

Therefore Apple will increase its supply to maximize its profit. As the diagram below shows that the supply curve will shift to the right, which from S0 to S1.

3.3 Elasticity
In economics, elasticity is a measure of responsiveness. The responsiveness is show how the quantity demand of a product responds to...
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