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Economic Factors

Imact of Supply and Demand on the Price

Project 1

Introduction

Beats is one of the best music headphones company in the world and recently Apple joined it. Supply and demand are two economic factors that are directly and indirectly related with the price. So in this report, effect of Apple joining beats on supply and demand has been discussed with diagrams.

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Part A Supply and Demand shifters

Demand in economic terms is defined as the willingness of people to buy a particular thing. It has been seen by many researchers that demand of the product depends upon many factors and among all of them one important factor is price (Schroeder, 2006). Generally price has negative effect on the willingness to buy but sometimes it has some positive effects also so it can be said that if the price of the quantity will fall then its demand will definitely increase.

Supply on the other hand can be defined as the willingness to sell and it is also dependent on many factors and in this also one important factor is called as price. It has been noticed that high prices generally discourages the sellers but it has positive impact on the sellers as they will increase the supply of product if the prices of the goods are high.

Recently Apple purchased Beats by dre so it can be said that the main aim of company is to expand its market in music industry (Henderson, 2009 ). As per the previous strategies of Apple is concerned, it has been seen that company follows the premium pricing policy and because of that products of company have very high prices. If the progress of beat has to be calculated for next three years then it can be said that there will be lots of shift in both demand and supply curves and it will have direct impact on the prices of company.

Shift in Demand and Supply Curve for next three Years

DEMAND

There are various factors that cause shift in the demand curve and it includes:

  • Nature of buyers in terms of increase and decrease in people wanting a particular product
  • Taste in terms of the present market trend or fashion
  • Income as the rise in income will increase demand and decrease in income will decrease demand
  • Expectations of buyers, etc (Fisher, 2007).

If seen on the perspective of price, then it can be said surely that Apple will invest in the technology of company and because of that demands of the products of Beats will increase and that will have indirect effect on price because increase in demand will increase the prices of products of company. But if the company thinks that demand is decreasing then they will decrease the prices.

In first year apple will not increase the prices of products but in the upcoming year company will increase the prices slowly and will follow its strategy of premium prising. So it can also be said that increase in prices will decrease in demand of the product of beat by dre (Adil, 2006).

This will be the demand and supply curve for the first year because company will not change the prices and because of that demand will not have any effect.

It could be the demand curve for second and third year as demand for the products will increase and because of that company will definitely increase the prices of the products and this will also increase the quantity of products. It can also be said as if the company will increase the prices of product then demand might decrease.

SUPPLY

There are various factors that causes shift in demand curve that includes:

  • Number of sellers in terms of amount of business that supply same product in market
  • New inventions that makes the product easier
  • Taxes and subsidies, etc.

As discussed above it can be said that in first year will not change the pricing strategy but in the coming years it will definitely increase the price and it will have direct effect on prices. So with the increase in prices of products, Apple will increase the supply in the market so that more and more people could purchase the products and revenues of company can increase.

So from this diagram, it can be said that as the prices of the goods will be increased by company then the supply of the products will also increase.

So from this, it can be said that as apple has purchased the company beats, it will definitely have positive effect over the products of company (Huttuen, 2004 ). Apple will invest in the products of company and will make them much better. If the market trend is seen that customers of Apple do not care about the prices and they purchase the products of company because of its brand image. Even if company will increase the prices of product, it might be possible that demands of the products remain constant or even increase. If beats will expand in new business related to music or developing new technology, prices of products will definitely increase but it will still have positive effects on demands.

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Part B

As discussed above, Apple joining will have positive impact on the products of company. Apple is known for innovation and premium pricing strategy. Apple will invest in company and will make the products of beats premium and because of that prices will increase (Goodwin, 2006 ). It is a fact that increase in prices decreases demand and increases supply but in case of Apple and beats it might be opposite because people purchase products of Apple even if the prices are high and this same thing will happen with beats. Technology in the products of company will increase and it will increase the demand of products and that will increase the prices.

From this diagram, it can be said that both demand and supply are increasing with the increase in prices and this will happen with beats as Apple has joined the company. Company will be able to earn more profits and its brand image will also increase in the next three years.

Conclusion

From this part, it can be said that Apple joining beats will have positive effects on the company and because of the both prices and supply will increase. Apple will increase the prices of product of company and it will still be very beneficial for beats. In this case, Apple is considered as griffin goods goods.

Project 2

Introduction

The organization in present scenario needs to adopt appropriate pricing strategy for the purpose of achieving competitive advantage. The supply and demand are considered to be tow important criteria for determining prices of commodities. The prices within an economy reduce with increase in competition. However, the organization can price its products and services appropriately with help of expected demand and supply. The second project of this report emphasizes on case of RHA, one of the leading business units for headphones and other accessories. The report helps in developing an understanding of way in which the business unit is able to price its products through expectations of demand.

Shift over next three years

RHA (Reid Heath Acoustics) has emerged as a leading organization is headphones and other accessories market. The organization is said to be efficient in manufacturing products with new technology (Lopez, 2015). In present world the consumers are highly technology friendly. None of the individuals assumes his/her life without high-tech instruments in present time. Moreover, consumers tend to have highly specific preference for technology oriented products. It is expected that in duration of next three years the demand of products supplied by RHA will increase. The business unit needs to create its pricing strategies as per expected demand of products.

a.) Supply curve

The organization is expected to supply commodities in the market as per demand and price prevailing. However, most of the times business unit is expected to supply products on the basis of its cost of production and available resources.

It is assumed that demand of products is constant in nature. However, the quantity supplied varies on the basis of business strategies in long run. In first case, the organization has reduced supply of products with similar level of demand. This in turn results in increasing prices due to insufficient capacity to meet the demand prevailing. In second case, the supply of products into consideration has been increasing (Kiefer, 2011). The prices henceforth reduce due to excess availability of products as compare to demand. It can be therefore said that the organization should supply products as per the level of quantity demanded so as to maintain equilibrium level of prices.

b.) Demand curve

The demand of products prevailing within an economy is also one of the important factors to determine prices of products.

With increase in demand of commodities at similar level of supply prices of commodities increases. With decrease in demand at similar supply the prices reduce. It can be therefore said that the organization can increase prices of commodities with increase in demand and constant supply (Faridimehr and Niaki, 2012). The business unit should therefore frame its strategies as per the future expectations of demand and supply.

In duration of three years it is expected that the demand of products is going to increase significantly. It is assumed that supply within an economy will be constant as per the capacity of all the organisations. This in turn indicates that the organization will be in situation of right-ward shift in demand curve that is increase in demand. The business unit can therefore increase prices of its products over the period of next three years. This in turn helps in increasing profit margin for RHA. The organization can materialize its expertise and increase profit margin by increasing prices of the products.

Strategic plan for the organization

RHA (Reid Heath Acoustics) has occupied prominent position in the market place. Moreover, the organization has gained high customer loyalty due to quality of its products. The business unit is highly efficient in manufacturing products with latest technology and features. In addition, the organization is able to manufacture and deliver products that are specific to customer needs and desires.  It is seen that the demand for headphones and other accessories is going to rise in upcoming future. Moreover, the business unit is able to create positive brand image for its products (Walras, 2013). The business unit should therefore upgrade technology on continuous basis. The organization should also evaluate customer requirements so as to meet them with efficiency (Antràs And Staiger, 2012). The business unit should emphasize on supplying customised products with the latest technology.

In case of technology oriented businesses the organization should make investment in right direction. RHA should conduct market research to understand consumers’ preferences   and manufacture products accordingly. The business unit should supply products as per the capacity and technology. Moreover, the organization can increase prices of its products due to higher expected demand. RHA should presently therefore emphasize on creating brand image by supplying quality products. Thereafter, the organization can increase prices of its products due to increased level of demand. The business unit can also charge premium prices for its brand image and expertise.

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Conclusion

It is seen that RHA is efficient in meeting demand of its customers. Moreover, the report also added valuable insight in context of the manner in which demand and supply impacts price determination of products. As per the analysis, it can be said that the RHA will achieve high growth in future. The business unit can adopt strategy to charge premium prices for its products in upcoming years.

References

  • Adil, J., 2006. Supply and Demand. Capstone.
  • Antràs, P. And Staiger, R. W., 2012. Trade agreements and the nature of price determination. The American Economic Review.
  • Fisher, B., 2007. The supply and Demand. Byron Fisher.
  • Goodwin, M., 2006. The Supply and Demand. Cambridge University Press.
  • Henderson, H., 2009. Supply and Demand. BiblioBazaar.
  • Huttuen, K., 2004. Managing the Demand-Supply Chain. John Wiley & Sons.
  • Kiefer, H., 2011. The house price determination process: Rational expectations with a spatial context. Journal of Housing Economics.
  • Schroeder, J., 2006. Supply and Demand. Benchmark Education Company.
  • Walras, L., 2013. Elements of pure economics. Routledge.
 
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