Business Economics

PART A – MICROECONOMICS

1. Price Elasticity of Demand:

Price elasticity of demand refers to the economical measurement of fluctuations in a product's demand or purchase about fluctuation in a product's price. In formula and equation are shown as:

Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price

Economists utilize price elasticity to explain how supplies or demands change due to price fluctuations to recognize real economic performance. If a product's requested quantity experiences a substantial shift in reaction to price movements, it is called "elastic," i.e. quantity extended far beyond its preceding level. If the bought quantity has a slight shift in reaction to its value, it is called "inelastic;" or quantities have not extended dramatically from their preceding level. The principle of demand elasticity is very important in deciding the prices of different production variables. Production variables are compensated as per demand elasticity. if a determinant's demand is inelastic, its value will be strong as well as its price will be lower when it is elastic. Once a distributor or supplier recognizes the Market Elasticity of Demand for their product, when they have to adjust the price of the product, this can enable them to assess their increase in Net revenue. Overall revenue is several items that are purchased multiplied by the price at which they are sold.

2. Main determinants of the price elasticity of demand for the Apple iPhone:

Relationships between price and demand of a product depend on different factors. These factors impact the product's demand directly and indirectly. Consideration of these factors is crucial to determine the overall impact on the price elasticity of the product's demand. Their impacts on demand may be major or minor as per the company's brand value, position in the industry, customer group, and nature of business. Apple also has several factors that play a key role in the curve of price elasticity of demand. Following three main determinants of Apple iPhones' price elasticity of demand, as follows:

Demand for Substitute Products:

The most significant variable affecting the demand elasticity is the availability of alternatives or substitute products. The higher substitutes lead to a more flexible market generally. Currently, apple has several substitute products like One Plus's smartphone, Samsung smartphone, etc.The company's products are facing heavy competition in the market due to these substitute products. However, due to its unique brand image, Apple's products are not so much affected by this factor but this factor for the the card company to bring changes in products and these substitutes attract price-sensitive customers.      

Share of the non-price sensitive customers in the market:    

Another determinant is the proportion of non-price sensitive customers in any market as most of iPhone's customers belong to this category. These are customers who are ready to pay any price for the company's premium product range. This customer group wants quality products with unique features. Company products are generally designed while focusing on this customer group and well-known brands at the international level. The company always creates records of sales on the first day of launching iPhones. The company's demand highly depends upon this customer group as they are also the company's loyal customers.    

Time and Change in customer's preferences:

This crucial determinant can affect price-elasticity of demand because, with a change in customer preferences, they may shift to another product which ultimately impacts the product's demand. Time taken by customers to change their preferences is a significant determinant that determines Apple's product sales during a specific period. The company also spends a lot of money on research and surveys of changes in customers' preferences so that the company can launch products accordingly.     

3. Apple benefits in terms of revenue from reducing prices:

Case 1:  iPhone 11Price:  $700 then sales go to 10 million units.

Case 2:  iPhone 11Price changed to $525 then sales went to  14 million units.

Price Elasticity of Demand =  Change (%) in Quantity Demanded / Change (%) in Price

                                              = 40 % / 33.33 % = 1.2 %

As the company's price elasticity of demand for the product iPhone 11 is positive i.e. 1.2% so company benefits in terms of revenue from declining prices.

Workings:                 

Change (%) in Quantity Demanded = (14 Million – 10 Million) / 10 million * 100 = 40%

Change (%) in Price = ( $700 - $525 ) / $525 = 33.33%

4. Perfect market competition-model:

The main characteristic of the gaming industry is a lower barrier to entrance and exists for companies. This industry is also closely linked with Apple's main product so it will provide competitive advantages to the company. In the Gaming industry companies will face Monopolistic Competition. It implies to industry where many corporations are offering products/services that are similar but can not be recognized as perfect substitutes.  Barriers related to entries and exits in a monopolistic-competitive industry are very low and also decisions taken by any company don't directly impact its core competitors. This kind of competition is mainly concerned with brand differentiation strategy.

Monopolistic Competition also linked with the Perfect market competition model relies on the principle that the same products purchased by a huge no. of customers are generated by several companies. This is a market model based on the idea that a large number of companies manufacture the same products purchased by a large number of purchasers. As in the case of Apple, in the gaming industry all companies are designing games and providing gaming services and a large no. of customers are using different games designed by these companies. So companies in this market are very low and the decision of any competitor will not affect Apple's product demand.  

5. Apple’s re-branding strategy:

Re-branding is a strategy that creates a new brand name, logo, design, idea, or variation of it for the existing brand to build a new, distinct image in the minds of customers, shareholders, competitors as well as different stakeholders. This often includes radical revisions to logos, titles, legal titles, logos, business models, and patterns of ads for a product.

PART B – MICROECONOMICS

6.

As the above graph exhibits the impact of changes in data-roaming charges impact both producer and consumer's surplus in the mobile phone market. As the data-roaming changes increase consumer surplus will decline and demand will also affected by a small decline. On the other side, producers' surplus will not change but due to a decrease in demand overall effect of the surplus is negative.

7.

European Union believed that the step of data roaming charges was an illustration of market failure. At least around 147 million EU residents currently are "roaming," i.e. using their cell phones when exploring another European nation. Consumer groups assume that a very large cross-section of customers, including medium and small-sized companies (SMEs), will accept the advantages of cheaper roaming charges. Average retail rates are around four times greater for calls being made while roaming than the comparable prices for national phone calls. Such value disparities could not be justified by operators ' cost variations. The mobile phone market is developing rapidly with increasing technological developments and also number of users and operators has increased. But even with such rapid growth in the industry, an increase in data roaming charges indicates market failure. Because with growth in users, companies should minimize rates of data but to cover the loss they are increasing data-roaming charges.

 

8.

The current regulation maintains a price cap on charges applied by one operator to the next for handling roaming calls on the wholesale market. The regulation also notes that markup used to calculate retail prices that customers are currently paying for placing or receiving a phone call during roaming can not surpass 30%. Of course, providers are allowed to negotiate under the wholesale cap and retail markup limit, paying each other as well for calls, increasing the retail markup, or distinguishing packages of products they sell as per customer demand. The proposed regulation will also boost price visibility, which has been a major roaming issue This allows mobile service operators to offer their roaming consumers customized data about retail roaming fees – on-demand and freely available. Since EU Mobile Roaming Regulations are internal market regulations applicable to the European economic region, this can be anticipated to be applied in the not-too-far future to Iceland, Liechtenstein, and Norway as well.

9.

Social and ethical responsibility with regards to data roaming charges: Providers of mobile phone services should follow social and ethical responsibilities and put them on priority, but they generally avoid them. Most of the service providers are efficiently providing solutions through their helpline centers. Also, most of the users are continuously facing the problem of call drop and excessive deduction of balance. Further, they do not directly support the ban on unethical content and other controversial things on the internet. Companies that are engaged in providing mobile phone services are also neg-ligating the fact about how much extent content on the internet affects social groups, communities, and other organizations. Towards increased data roaming chargers, their attitude is not so much appreciable as they are maintaining the same margin even with enhanced data roaming charges.    

PART C – MACROECONOMICS

10. (a):

Recession periods: Great Recession relates to the 2008-2013 economic recession. The recession started after the global credit crisis in 2007/08, resulting in a sustained period of minimal/sluggish growth, increasing inflation, and deficit spending. The Great Recession, in general, exposed issues within the Eurozone which suffered a double-dip recession with massive unemployment. The key factor of the major recession was the credit crunch (2007-08) in which the international financial structure was underfunded, contributing to a fall in credibility and a decrease in bank credit. U.S. lenders have made a huge rise in subprime mortgages in 2000-2007. Such loans were quite volatile, and there was a lot of ' irrational exuberance ', and housing prices values would continue to rise. US bankers lost a lot of money, but later banks around the world discovered that the ' free ' packages of mortgages they purchased were in reality useless. Many banks across the globe have seen their resources decline dramatically in liquidity and valuation. 

10. (b):

The aggregate demand / aggregate supply, or AD / AS, framework is economics ' basic method as it offers an overarching basis for putting together economic factors in one graph. We may use the AD / AS model to analyze long-term economic growth, but the variables that decide the pace of this long-run rate of economic growth may not exist explicitly in the AD / AS diagram. Inflation changes in the short term and increased inflation rates normally happen either after or during economic booms. If overall demand tends to swing to the right when the economy is already at or close to possible GDP and high employment, moving macroeconomic balance into a steep component of the cumulative supply curve. One cause of inflationary forces is an increase in commodity costs that impacts most or all companies across the economy — maybe a big input into output such as oil or labor.

10. (c).

Inflation will occur if, during normal economic conditions, the supply of money grows faster than the economic output. Inflation, or the pace at which the aggregate price of a product or service increases slightly, may also be influenced by variables beyond supply. Inflation occurs in two forms, as per Keynesian economists: demand-pull and cost-push. Demand-pull inflation happens when customers demand products at a rate greater than production, potentially due to a greater money supply. Cost-push inflation happens when input prices for goods begin to rise at a rate faster than shifts in consumer behavior, likely due to a greater money supply. Many factors may be linked to a switch in overall supply, including revisions in lobar volume and efficiency, technical developments, wage increases, increases in manufacturing costs, shifts in producer taxation, and incentives and inflation changes. In the short term, by growing the supply of existing inputs in the production process, total output responds to increased demand (and prices). Nonetheless, overall supply is not influenced by price level in the long run and is guided only by operational efficiency upgrades and inflation.

10. (d):

The AS / AD model will describe the changes in actual GDP, inflation, and unemployment for the 2007 GFC period as follows. First, the UK economy experienced a negative supply disruption from year-2007 to 2008 (1) as a result of the deflation of a domestic real estate bubble, a doubling of the oil price, and significant price rises in other products. Such negative supply disruption describes the GFC's start i.e. the 2007/08 stagflation, as just a negative supply shock causes both increased inflation and lower production, and increased unemployment. Britain's growth rate jumped up to 0.4% in the second quarter, against 0.1% at the beginning of the year when snowstorms and cold snap affected operations throughout the UK. With a warm summer promoting consumption, in 3 months to August, the rolling quarterly average continued to rise to 0.7 percent. The implications of the outcome of the referendum have already started to be felt in the UK. A drop in the supply of migrant workers is starting to take shape because of the expectation that after the referendum they will no longer be accepted in the UK.

CONCLUSION

From the above study, it has been articulated that business economics is a crucial aspect that defines macro and micro factors associated with the business. It enables corporations to handle adverse economic situations. Microeconomics and Macroeconomics are two significant divisions of entire business economics. Microeconomics deals with all the variables that are closely linked with business enterprises and their different products. Macroeconomics covers a wider range of factors that are not directly associated with business and belong to an extremal environment. Macro factors are more risky in comparison to micro factors as the identification of macro factors is a complex task. Global Assignment Help Australia offers expert guidance and support.

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