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Apple and the Demand for iPods

Apple and the Demand for iPods. Learning Objectives.

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Apple and the Demand for iPods

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  1. Apple and the Demand for iPods Learning Objectives By early 2007, over 100 million iPods had been sold and more than two billion songs had been downloaded from iTunes. Clearly the strategy of selling an expensive digital music player and selling the music cheaply has been very successful for Apple. But how long will the iPod’s dominance last?

  2. Where Prices Come From: The Interaction of Demand and Supply • Perfectly competitive market A market in which there are many buyers and sellers, all the products are identical, and there are no barriers to new sellers entering the market.

  3. Learning Objective 3.1 The Demand Side of the Market Demand Schedules and Demand Curves • Demand schedule A table showing the relationship between the price of a product and the quantity of the product demanded. • Quantity demanded The amount of a good or service that a consumer is willing and able to purchase at a given price. • Demand curve A curve that shows the relationship between the price of a product and the quantity of the product demanded. • Market demand The demand by all the consumers of a given good or service.

  4. Learning Objective 3.1 The Demand Side of the Market Demand Schedules and Demand Curves FIGURE 3-1 A Demand Schedule and Demand Curve

  5. Learning Objective 3.1 The Demand Side of the Market The Law of Demand • Law of demand The rule that, holding everything else constant, when the price of a product falls, the quantity demanded of the product will increase, and when the price of a product rises, the quantity demanded of the product will decrease.

  6. Learning Objective 3.1 The Demand Side of the Market What Explains the Law of Demand? • Substitution effect The change in the quantity demanded of a good that results from a change in price, making the good more or less expensive relative to other goods that are substitutes. • Income effect The change in the quantity demanded of a good that results from the effect of a change in the good’s price on consumers’ purchasing power.

  7. Learning Objective 3.1 The Demand Side of the Market Holding Everything Else Constant:The Ceteris Paribus Condition • Ceteris paribus(“all else equal”) The requirement that when analyzing the relationship between two variables—such as price and quantity demanded—other variables must be held constant. • A shift of a demand curve is an increase or decrease in demand. A movement along a demand curve is an increase or decrease in the quantity demanded.

  8. Learning Objective 3.1 The Demand Side of the Market Holding Everything Else Constant:The Ceteris Paribus Condition FIGURE 3-2 Shifting the Demand Curve

  9. Learning Objective 3.1 The Demand Side of the Market Variables That Shift Market Demand • Normal good A good for which the demand increases as income rises and decreases as income falls. • Inferior good A good for which the demand increases as income falls and decreases as income rises. • Many variables other than price can influence market demand. • Income

  10. Learning Objective 3.1 The Demand Side of the Market Variables That Shift Market Demand • Substitutes Goods and services that can be used for the same purpose. • Complements Goods and services that are used together. • Price of related goods • Tastes • Consumers can be influenced by an advertising campaign for a product.

  11. Learning Objective 3.1 The Demand Side of the Market Variables That Shift Market Demand • DemographicsThe characteristics of a population with respect to age, race, and gender. • Population and demographics • Expected Future Prices Consumers choose not only which products to buy but also when to buy them.

  12. Learning Objective 3.1 The Demand Side of the Market Variables That Shift Market Demand TABLE 3-1 Variables That Shift Market Demand Curves

  13. Learning Objective 3.1 The Demand Side of the Market Variables That Shift Market Demand TABLE 3-1 Variables That Shift Market Demand Curves (continued)

  14. Learning Objective 3.1 MakingtheConnection • Why Supermarkets Need to Understand Substitutes and Complements

  15. Learning Objective 3.1 MakingtheConnection • Companies Respond to a Growing Hispanic Population As the demand for goods purchased by Hispanic households increases, more can be sold at every price. Not surprisingly, companies have responded by devoting more resources to serving this demographic group. You can download Spanish music from iTunes. Apple is one of many companies responding to a growing Hispanic population.

  16. Learning Objective 3.1 The Demand Side of the Market A Change in Demand versus a Change in Quantity Demanded FIGURE 3-3 A Change in Demand versus a Change in the Quantity Demanded

  17. Learning Objective 3.1 MakingtheConnection • Apple Forecasts the Demand for iPhones and other Consumer Electronics To decide which products to develop, firms need to forecast the demand for those products. Time will tell whether Apple’s forecast of a large demand for the iPhone will turn out to be correct. Will Apple’s iPhone match the success of its iPod?

  18. Learning Objective 3.2 The Supply Side of the Market • Supply schedule A table that shows the relationship between the price of a product and the quantity of the product supplied. • Supply curve A curve that shows the relationship between the price of a product and the quantity of the product supplied. • Quantity supplied The amount of a good or service that a firm is willing and able to supply at a given price. Supply Schedules and Supply Curves

  19. Learning Objective 3.2 The Supply Side of the Market Supply Schedules and Supply Curves FIGURE 3-4 Supply Schedule and Supply Curve

  20. Learning Objective 3.2 The Supply Side of the Market The Law of Supply • Law of supply The rule that, holding everything else constant, increases in price cause increases in the quantity supplied, and decreases in price cause decreases in the quantity supplied.

  21. Learning Objective 3.2 The Supply Side of the Market The Law of Supply FIGURE 3-5 Shifting the Supply Curve

  22. Learning Objective 3.2 The Supply Side of the Market Variables That Shift Supply • Prices of substitutes in production • Number of firms in the market • Expected future prices • The following are the most important variables that shift supply: • • Prices of inputs • • Technological change Technological change A positive or negative change in the ability of a firm to produce a given level of output with a given quantity of inputs.

  23. Learning Objective 3.2 The Supply Side of the Market Variables That Shift Supply TABLE 3-2 Variables That Shift Market Supply Curves

  24. Learning Objective 3.2 The Supply Side of the Market Variables That Shift Supply TABLE 3-2 Variables That Shift Market Supply Curves (continued)

  25. Learning Objective 3.2 The Supply Side of the Market A Change in Supply versus a Change in Quantity Supplied FIGURE 3-6 A Change in Supply versus a Change in the Quantity Supplied

  26. Learning Objective 3.3 Market Equilibrium: Putting Demand and Supply Together FIGURE 3-7 Market Equilibrium

  27. Learning Objective 3.3 Market Equilibrium: Putting Demand and Supply Together • Market equilibrium A situation in which quantity demanded equals quantity supplied. • Competitive market equilibrium A market equilibrium with many buyers and many sellers.

  28. Learning Objective 3.3 Market Equilibrium: Putting Demand and Supply Together How Markets Eliminate Surpluses and Shortages Surplus A situation in which the quantity supplied is greater than the quantity demanded. Shortage A situation in which the quantity demanded is greater than the quantity supplied.

  29. Learning Objective 3.3 Market Equilibrium: Putting Demand and Supply Together How Markets Eliminate Surpluses and Shortages FIGURE 3-8 The Effect of Surpluses and Shortages on the Market Price

  30. Learning Objective 3.3 Market Equilibrium: Putting Demand and Supply Together Demand and Supply Both Count Always keep in mind that it is the interaction of demand and supply that determines the equilibrium price. Neither consumers nor firms can dictate what the equilibrium price will be. No firm can sell anything at any price unless it can find a willing buyer, and no consumer can buy anything at any price without finding a willing seller.

  31. Learning Objective 3.3 3-3 Solved Problem Demand and Supply Both Count: A Tale of Two Letters

  32. Learning Objective 3.4 The Effect of Demand and Supply Shifts on Equilibrium The Effect of Shifts in Supply on Equilibrium FIGURE 3-9 The Effect of an Increase in Supply on Equilibrium

  33. Learning Objective 3.4 MakingtheConnection • The Falling Price of LCD Televisions

  34. Learning Objective 3.4 The Effect of Demand and Supply Shifts on Equilibrium The Effect of Shifts in Demand on Equilibrium FIGURE 3-10 The Effect of an Increase in Demand on Equilibrium

  35. Learning Objective 3.4 The Effect of Demand and Supply Shifts on Equilibrium The Effect of Shifts in Demand and Supply over Time FIGURE 3-11 Shifts in Demand and Supply over Time

  36. Learning Objective 3.4 The Effect of Demand and Supply Shifts on Equilibrium The Effect of Shifts in Demand and Supply over Time TABLE 3-3 How Shifts in Demand and Supply Affect Equilibrium Price (P) and Quantity (Q)

  37. Learning Objective 3.4 3-4 Solved Problem High Demand and Low Prices in the Lobster Market? Supply and demand for lobster both increase during the summer, but the increase in supply is greater than the increase in demand, therefore, equilibrium price falls.

  38. Learning Objective 3.4 The Effect of Demand and Supply Shifts on Equilibrium Shifts in a Curve versus Movements along a Curve When analyzing markets using demand and supply curves, it is important to remember that when a shift in a demand or supply curve causes a change in equilibrium price, the change in price does not cause a further shift in demand or supply.

  39. Learning Objective 3.4 The Effect of Demand and Supply Shifts on Equilibrium Shifts in a Curve versus Movements along a Curve Don’t Let This Happen to YOU!Remember: A Change in a Good’s Price Does NotCause the Demand or Supply Curve to Shift

  40. How Does the iPhone Help Apple and AT&T? LOOK An Inside Apple Coup: How Steve Jobs Played Hardball in iPhone Birth

  41. K e y T e r m s Ceteris paribus (“all else equal”) Competitive market equilibrium Complements Demand curve Demand schedule Demographics Income effect Inferior good Law of demand Law of supply Market demand Market equilibrium Normal good Perfectly competitive market Quantity demanded Quantity supplied Shortage Substitutes Substitution effect Supply curve Supply schedule Surplus Technological change

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