Normal goods are those products or services whose demand increases when the consumers’ level of income increases. A reduction in the income levels of the consumers causes a drop in the demand for the product or service. On the other hand, when the demand for inferior goods decreases, the consumer’s income increases. Inferior goods are associated with lower socio-economic consumers since they are affordable and of lower quality. When there is an increase in the consumers’ income, the demand for inferior goods diminishes. For Apple’s iPhone 5S, as the level of income goes up, many people will demand to buy the phone due to its superior quality and status.
Prices of Competing Products/Services
For a normal product, an increase in the price of competing goods causes an upsurge in its demand. For instance, an increase in the price of the Samsung Galaxy S6 will result in increased demand for the cheaper iPhone 5s. A decrease in the price of Galaxy S6 will cause a decrease in demand for iPhone, as consumers will prefer buying the more affordable substitute (Galaxy S6) for Apple’s product. An increase in demand is indicated by a shift of the demand curve to the right thereby arriving at a new market equilibrium as shown in the diagram below.
Number of Consumers
An increase in the number of consumers joining the middle and upper classes will result in amplified demand for the product. This change of demand is indicated by a shift in the demand curve to the right. A decrease in the number of consumers for iPhone 5S, which may be instigated by changing socio-economic factors, causes the demand curve to shift leftwards. This phenomenon denotes a diminishing demand for the product.
Technological advancement implies that goods can be produced at reduced costs with improved efficiency. In this case, Apple Inc. will produce and release more iPhone 5S devices to the market. This situation will see the supply curve shift from the left to the right.
The effect of entrant competitors on the market is a reduction in demand for the iPhone because customers have a broad range of choices. Decreased demand for the iPhone will push the suppliers to reduce production or else use other marketing strategies to improve its demand.
Cost of Production
An increase in the cost of production means that the producer will pay more cost per unit of production. The effect is reduced production that leads to low product supply. The supply curve shifts from the right to the left side and vice versa upon reduction of production costs (Burnetas & Ritchken, 2005).
If the government provides subsidies to either the consumers or producers for a particular commodity, the demand for such goodwill increase since more consumers will afford it. The producers will also yearn to produce more units of the product because the government will meet a part of the production cost. As a result, there is a shift in the supply curve as shown in figure 2. A consumer price subsidy is shown in figure 3.
Price elasticity of demand
Price elasticity of demand is the degree of responsiveness of demand for a product with a change in the price. The iPhone 5S is not a necessity good. Therefore, a change in its price will lead to a small change in its demand; hence, it is price inelastic as shown in figure 1.5 below. (Note: The units do not represent actual variables).
Burnetas, A., & Ritchken, P. (2005). Option Pricing with Downward-Sloping Demand Curves: The Case of Supply Chain Options. Management Science, 51(4), 566-80.
Choudhary, A. (2014). Smartphones and their Impact on Net Income per Employee for selected US Firms. Review of Business & Finance Studies, 5(2), 9-17.
Graves P., & Sexton, R. (2006). Demand and Supply Curves: Rotations versus Shifts. Atlantic Economic Journal, 34(3), 361-4.