Case in the news: Demand/Supply and Equilibrium
This article is based on the fundamental idea of supply and demand of the iPhone 5 whose demand has outstripped its supply. Due to the fact that the demand is so high, even those who pre-ordered the new slim iPhone 5 had to wait until October to get this new phone. The sales have broken all previous records and stand tall at 2 million phones in the first 24 hours. According to the article people had been stopping their purchases from the starting of the New Year and hence creating an unusually strong demand known as pent-up demand which leads to an increase in the consumer confidence of the product. (Guglielmo, 2012)
Figure: 1.1 at the bottom indicates the equilibrium point where the demand and supply meet. This is also known as market clearing.
Price of iPhone5
E E1 Top Price
Excess demand D1
Figure: 1.1 (at equilibrium) Figure: 1.2 (in the short run)
Figure: 1.2 shows the short run shift in the demand curve for iPhone 5 as the supply cannot keep up with the demand of the consumers. In theory when the demand for a product goes up usually the price increases too, as we can see in Figure: 1.2 in red. However, in this case the price of the new iPhone 5 remains constant at P*, with only the demand increasing from Q* to Q1. This shift in the demand curve from D to D1 leads to a temporary shortage of phones from Q* to Q1 and hence people will have to wait it out till the phones are available again by the company. Another strategy used by Apple was that consumers with iPhone 4S who do not...
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