Microeconomics Individual Assignment: Are we facing shortages in smartphones when they first released?

We are living in a fast-paced world, surrounded by all the advanced technology. One of the evidence that reflects the advancement of technology would be the invention of smartphones. There are plenty of smartphone brands today, where the prominent ones are Apple, Samsung, Sony Ericsson and HTC. The rapid launching of so many types of smartphones has cause the market to fluctuate throughout the years. Nowadays, the consumption of smartphones keeps on growing regardless of which group of people in the society. Due to the increasing number of consumption, smartphones market faced the problem of high demand when they first released their product.

The high consumption of smartphones when they first established creates a high demand in the market, yet it exceeds the supply. The demand of smartphones is higher than the company’s expectation. The supplier is not able to produce as much as it demands. Therefore, it causes a shortage of smartphones when it first launched. Latest news showed Apple fans are willing to queue up days and nights for Iphone 5 and it hits a peak when first released. (The Star, 2012) This obviously shows how high the demand can be among humanity. There are various factors that cause the demand of smartphones to be high. It is due to customer’s taste or preferences, the number of population, technology and income. As for supply, the number of suppliers, limited resources, cost of production and government policy causes the supply unable to meet the high demand of smartphones.

Demand clearly defined as the amount of goods or services that consumers are willing and able to purchase during a specific time, at a given price. (Sloman, Wride and Garratt, 2012).For instant, when you plan to buy a new phone that you wish for after so long which you can afford it, you will simply demand it.

One of the determinants would be the customer’s taste or preference that affects the high demand of smartphones. The more you desire on a good, the more likely you will purchase it, the higher the demand it will form. There is a current news stated that Samsung smartphones get an award due to their product enables to build responsiveness to customer’s taste or preference. (Samsung, 2012) The features and functions of smartphones match customer’s taste or preference and attracts them in ways, people have the desire to own it, therefore creates the demand of smartphones to be so high. As shown in graph, the desirable of people increases based on the customer’s taste or preference will shift the demand curve towards the right which shows a high demand of smartphones.

The number of population also the factor for demand as it rises the demand of smartphones in the market. As the population grows every year, it means the demand of goods also upsurges. Malaysia as an example, it was recorded that the total population has increased from 8.1 million people in 1960 to 28.9 million people in 2011. The number of citizens shows an escalation indirectly causes the consumption on smartphones to rise. Population is a kind of nature good or basic commodity which can lead to high demand in the smartphones market. We can observe through the graph below, the demand curve will shift to the right due to the number of population increases.

Table below shown the population of Malaysia

Furthermore, the alteration of technology will affect the changes in demand. Technological advanced has transform mobile phones to smartphones. Not to mention that, everyone possesses a touchscreen smartphones in their pocket. A recent updates showed an increase in number of Australian kids using smartphones. (News.com.au, 2013) Even kids today own a smartphone, this wider the smartphones user, therefore, it leads to the high demand of smartphones. Flash back when we are still a kid, do we use smartphones, or even own a phone? Changes in technology somehow lead a rightward shift in the demand curve.

 Shift in demand curve can be influenced by the income. As income of one has risen, their demand for goods or services will increase as well. When man get richer, they will definitely purchase a normal good instead of inferior good. For example, Sharon’s income increases for this month, she would like to spend it on the latest product which is Samsung s4. People would demand for something they prefer due to their acceleration of income. This causes the shifting in demand curve of smartphones towards the right.

 In economics, supply is meant by the amount of goods or services that producers can supply during a particular time, at a certain price. (Sloman, Wride and Garratt, 2012).There are numerous determinants why supply is not able to meet the high demand of smartphones when they first released.

Factor that causes the low supply of smartphones would be the number of supplies. Lack of suppliers in numbers cause a limited stocks of smartphones for consumer to make their purchase decision. People who are willing to buy it will have to pre-order due to low supply by the suppliers as compared to the market demands. A newest article mentioned that demand has surpassed the initial supply which causes consumers need to pre-order. (Guglielmo, 2012) This shows the low supply for smartphones and shifts the supply curve towards the left because of the number of suppliers.

Moreover, limited resources considered as another determinant that affect the low supply of smartphones. A survey in an article showed the components of Apple Iphone 5 faced a shortage. (Seitz, 2012).The combination of these new components in the device causes the supply constraints. Therefore, it causes a low supply in the market of smartphones. The supply curve will shift leftwards due to the limited resources.

Cost of production also lowers down the supply of smartphones. When the cost is high in production, the suppliers is not willing to produce more. It explains when it supplies too much, the cost of production is too high, the lesser the profit will be earned. For example, microchips and production methods can cause the cost in manufacturing smartphones turn higher. Cost of production leads the supply curve shift towards the left.

Last but not least, government policy plays a vital role in the low supply of smartphones. The costs will raised by government in the context of taxes. High taxes cause the suppliers to generate fewer products. It somehow affects the low supply is incapable to meet the high demand of smartphones and shifts to the left in the supply curve.

Shortage exists when the demand exceeds the supply which means that the inability of producer to form the amount of products to satisfy the buyer’s willingness. (Sloman, Wride and Garratt, 2012).According to the article I go through, there is a shortage occurs in the smartphones market when they first launched. It shows a high demand yet low supply in the market. However, the smartphone companies has come across this problem and overcome it in ways. In order to solve the problem of shortage, smartphone companies like Apple and Samsung will increase the number of supplies. As the number of suppliers upturns, they are able to manufacture their products in an efficient way within the given time. The burden of job can be dividing into parts among their suppliers and resulting in better outcomes. By raising the number of suppliers, it will then increase the supply of smartphones. Seek for cheaper resources or replacement components will also resolve the shortage matters. Smartphone companies try their best to search for those resources or components which costs lower price yet never lose the originality or good quality of their products. Low-priced resources or components will cause an increase in the supply of smartphones.

A growth in the price of smartphones ensures in solving the shortage issues. When the price of smartphones increases, it enables the smartphone companies to cover their cost of production. The profit earned from smartphones sold will definitely cover up the expensive cost in producing their products. The supply of smartphones will rise as the price of smartphones increase. Make a change in resources of smartphones will do in settling the shortage concerns. In order to have the capability to afford the taxes stated by government, smartphone companies will alter the resources with the same function but using different type of resources. Although there are changes in resources, it still remains the same quality as usual. Changes in resources will increase the supply of smartphones in the market. Above solutions shows a growth in the supply of smartphones due to the high demand of smartphones during the first few releasing week. Increase the number of supplies, seek for cheaper resources or replacement components, increase in price of smartphones and changes in resources will lead the movement along the supply curve to move upwards. As a result, both the demand curve and supply curve will meet a point and forms the market equilibrium point where the demand equals to supply.

 

In conclusion, smartphones can be unnecessary for everyone to own it. However, smartphones actually benefits us in plentiful ways. Young generation may demand for smartphones which advantages them in education and communication yet by not following the trend. They have to think rationally in making their purchasing decision. As consumers like us should spend wisely in buying smartphones in order to avoid a shortage where demand exceeds supply. 

References:

Guglielmo. C (2012) Apple Says Iphone 5 Demand Outstrips Supply As Pre-orders ‘Shatter’ Previous Record [Online] Available from: http://www.forbes.com/sites/connieguglielmo/2012/09/17/apple-says-iphone-5-demand-outstrips-supply-as-pre-orders-shatter-previous-record/ [Accessed 5 June 2013]

News.com.au (2013) Rise in number of Australian kids with smartphones [Online] Available from: http://www.news.com.au/lifestyle/parenting/rise-in-number-of-australian-kids-with-smartphones/story-fnet085v-1226630247931 [Accessed 7 June 2013]

Samsung (2012) Samsung Awarded “Device Manufacturer of the Year” by GSMA at Mobile World Congress 2012 [Online] Available from: http://www.samsung.com/latin_en/news/globalnews/2012/samsung-press-release-mwc-gsma-award-device-manufacturer-of-the-year-mobile [Accessed 6 June 2013]

Seitz. P (2012) Apple iPhone 5 Hampered By Component Shortages [Online] Available from: http://news.investors.com/technology/092512-626993-apple-iphone-5-shipments-slowed-by-parts-shortages.htm?p=full [Accessed 4 June 2013]

Sloman, J., Wride, A. and Garratt, D. (2012) Economics. 8th ed. England: Pearson Education Limited.

The Star (2012) Apple iPhone 5 fever rages despite grumbling over maps [Online] Available from: http://biz.thestar.com.my/news/story.asp?file=/2012/9/22/business/20120922130115&sec=business [Accessed 6 June 2013]