The iPad was released on 27 January 2010 it appeared in US stores on 3 April 2010
Price of an iPad is determined by the price mechanism. Price mechanism is the process in a market economy where consumers and businesses interact to allocate the scarce resources between competing users. Prices have two functions, which are the signaling function and rationing function.
In fig 1.1, it is shown that if prices of iPad are below equilibrium, quantity demanded of iPad exceeds quantity supplied which results in a shortage. The shortage places an upward pressure as consumers are willing to cast higher dollar votes (signaling function).
As such, quantity of iPad demanded decreases as consumers who are unwilling or unable to pay will be rationed out of the market (rationing function). Quantity of iPad supply will increase. The price of iPad increases until the shortage is eliminated at the equilibrium price. This is true vice versa when the price is above equilibrium.
There are several products which are related to the iPad. Two examples are Samsung Galaxy Tab and HP Slate. These products can be considered to be substitutes of iPad as all three of them have common characteristics. All of them are multi-touch tablets, have similar storage capacity, same portability and they have access to markets which sell applications.
Discuss how recent developments would affect your marketing and pricing decisions for the iPad.
increase in number of sellers increase cost of production.
From January 2010 to March 2011, Samsung Galaxy Tab, HP 3G Touchpad and Apple iPad 2 have been introduced to the tablet market. Hence, there is an increase in the number of producers, increasing the supply of tablets in the market economy.
In the short run, ceteris Paribus, an increase in supply of tablets will produce a surplus of tablets This lowers the price of tablets in the market. As the price falls, more consumers are being rationed into the market as more consumers are able and willing to pay for the iPad, increasing the quantity demanded.
There is a higher supply of tablet products in the market, hence there will be a surplus of products such as the iPad. I should decrease the price of the iPad so that more consumers are being rationed into the market as they are able and willing to pay for the product. This would increase the quantity demanded and decrease the quantity supplied. This allows me to maximize profits as I will suffer less loss from the iPads being sold at the lower price as it prevents me from having a surplus of unsold iPads.
Next, there is a high suicidal rate of workers of foxconn due to unreasonably low wages, substandard working conditions and long working hours. As such, Apple has decided to build more hostels, sports facilities and increase wages to mitigate the impact of these suicide rates. The wages have increased by 121%.
This would consequently lead to an increase in cost of production as Apple has to channel more money to Foxconn to increase wages of workers and build facilities for workers. Due to the increase in cost of production, I would increase the price of price of iPads in order to maximize profits.
A recent development in the market is that the introduction of HP slate tablet to the market which is a cheaper alternative/ substitute to Apple iPad but has the same specification. The factor here will be prices of substitutes. I, as a consumer will want to buy a product that maximize both my need and my satisfaction at a lower price. Given that there is an undercut of the price of a HP slate tablet in the market, the quantity demanded for HP slate tablet increases but will lead to a fall in demand for Apple iPad as a cheaper substitute will also maximize my satisfaction. Since they are close substitutes, the greater the fall in the demand of Apple iPad will be for a given fall in prices of HP slate tablet. o I should invest more on R&D to improve productivity. This would save cost, enabling me to be able to lower the price of iPad to increase the demand as that would ration more consumers into the market. This would maximise profits
Another recent development in the market is the introduction of iPad 2. IPad 2 is thinner and lighter and more advanced than iPad. I, as a consumer, would less desire iPad because i changed my taste to another new product, iPad 2 that is more desirable than iPad which has emerged. With this, the demand curve will shift leftwards as quantity demanded decreases. I should lower the price of iPad to increase the demand as that would ration more consumers into the market. This would maximise profits.