Business Economics in Practice: Case Studies and Analysis

1. Introduction

Business economics is being addressed as a field of applied economics that examines a range of financial, organisational, market related, and environmental issues that are faced by companies in the contemporary business environment. It covers several elements related to market demand, pricing strategy of companies, consumption, distribution, and other. It pays extra attention to evaluate the relationship between current market trends and business strategies of the firm (Mankiw, Taylor and Ashwin, 2019). This report comprises three sections. The first section evaluates different aspects of price elasticity of demand with reference to the case of Apple. The second section evaluates supply and demand factors as per the case of Mobile roaming charges. The last section carries out trend analysis with consideration of consumption and GDP data of UK

2. Analysis and Discussion

Part A

Question 1

As the case, Apple is introducing a series of new products and services like the iPhone 11. The company has faced several issues in the assessment of future demand for its new product range. In this context, the approach of price elasticity of demand seems an important approach to determine the sensitivity of price related to product demand. Moreover, the company is rebranding its products and services along with their prices. Therefore, the elasticity of demand assists businesses in the determination of output levels for different products and services. Moreover, the elasticity of demand for a product is linked with the price determination (Castillo-Vergara, Alvarez-Marin and Placencio-Hidalgo, 2018). The ratio that shows the fall in demand due to an increase in price and vice versa can be termed as the elasticity of demand. For the introduction of the new product, the approach of price elasticity will assist the management of Apple in the forecasting of the future demand of iPhone 11, Apple Watch, iPad, and other gaming services in an appropriate manner. Moreover, this approach supports business entities in the determination of the pricing of joint products that would be offered by Apple in the form of value-added services.

Price Elasticity of Demand = Proportionate Change in Demanded Quantity / Proportionate Change in price

Question 2

As per the case, there are several determinants identified that influence the price elasticity of demand for the Apple iPhone. The company is introducing three new phones that include iPhone 11, iPhone 11 Pro, and the iPhone 11 Pro Max. The iPhone 11 is an entry-level product, and other models would be treated as premium products. Therefore, product substation is being termed as the most important determinant. The company presents this new product as a substitute for its one of the flagship phones known as the iPhone XR. However, the company is going to introduce a new iPhone 11 in comparatively low price to iPhone XR with an additional wide-angle camera in similar pricing that would support the company to enhance sales. It would be termed as an important determinant of price elasticity of demand (Spiethand Schneider, 2016). This is because the low price of a certain product could influence the spending of people in terms of product selection. It influences the overall market demand. In addition to that, Samsung is also offering a similar feature in its smartphone, so the level of market competition between Samsung and Apple influences the elasticity of demand.

Question 3

With reference to the case of Apple, the calculation of price elasticity of demand is carried out below with consideration of different sales and pricing figures:

Old price of Apple iPhone 11= $700 , Old Demand= 10 Million

New Price = $525, New Demand = 14 Million

Percentage Change in Demand = (14-10)/10 = 40%

Percentage Change in Price = (700-525)/700 = 25%

Price Elasticity of Demand = Proportionate Change in Demanded Quantity / Proportionate Change in price

Price Elasticity of Demand = 40/25= 1.6

As per the above calculation, the price elasticity of demand for the iPhone 11 is highly elastic because the result is higher than 1 that is 1.6 so as it can be stated that a slight reduction in the price of new Apple iPhone 11 would play a critical role to drive the demand appropriately. The above calculation shows that the demand for Apple’s products is highly linked with its pricing. Therefore, the management of Apple would find a significant increase in the revenue due to a reduction in the price of Apple products because the proportion of change in demanded quantity is significantly higher than the proportion change in the price (Mankiw, Taylor and Ashwin, 2016). This finding would support the price reduction decision of Apple.

Question 4

As per the case, Apple introduces its gaming service that is called Apple Arcade with a a subscription cost $5 month. This service would be available in more than 150 countries. This business strategy would facilitate a competitive edge to other companies. This is because the gaming industry market comes in the category of Perfectively Competitive Market. This type of market condition would support business in the formulation of various corporate strategies in an appropriate manner. In the context of the perfect competition market, all companies have appropriate information about the market trends such as the interest of customers, market strategies of other companies, level of competition, and many more. This market condition also facilities low entry and exit barriers (Hu and Feng, 2017). Moreover, the pricing of goods and services is significantly influenced by market trends. As per the case, users can access more than 100 games through Apple Arcade which are not available in any other platform, and users can use all types of Apple devices to play different games like iPhones, iPads, Macs, and Apple TV. Therefore, Apple’s gaming service would facilitate a competitive edge over other companies because the company has already a large number of users of different types of devices all over the world. Moreover, the company has considered a unique combination of games like Frogger that assists the organisation to win a competitive edge in the market of perfect competition.

Question 5

The present case describes that Apple is transforming its branding strategy to enhance revenue flow. According to the pricing strategy of Apple, the company launches its products and services at comparatively high prices to cover the revenue gap of low demand. In the context of the company’s rebranding strategy, Apple introduces its new smartphone range of iPhone 11 in two different categories. In this regard, the iPhone 11 would be treated as an entry-level option, but the addition of a “Pro” label shows the premium category and makes them more expensive models. Moreover, the company has also linked its rebranding strategy with aggressive pricing in which the iPhone 11 will be offered at $700 that is lower than the price of the iPhone XR that is $700. This strategy will support Apple to influence the existing users to upgrade with a new device. However, ‘Pro’ models are going to sell at relatively higher prices. This rebranding strategy of the company is also applied in other products like iPad, and others. In the context of a rebranding strategy, fluctuations in the sales of Apple’s products have influenced the company to pay special attention to its pricing strategy, so the company is also offering its new updated Apple watches in the price of the old models (Parkin, Powell and Matthews, 2017). Furthermore, Apple also introduces its streaming services with some original shows through Apple TV Plus. The pricing of the streaming service is also lower than other competitors. Therefore, Apple’s rebranding strategy would support a business entity to increase the number of users of different Apple’s products and services that would enhance the revenue of the firm.

Part B

Question 6

As per the case, the existence of data roaming charges affected consumer and producer surplus. In this context, there is little increment identified in demand for mobile services in roaming locations, so the proportion of the increase in demand is less than the proportion of the increase in the supply of services (Sloman, Garrett and Wride, 2015). In this context, the above supply and demand diagram stated that increase in demand is proportionately less than the increase in supply, and then a rightward shift in the demand curve is identified that is shifted from D to D¹ and it is proportionately less than a rightward shift in supply curve from S to S¹. This change influences companies to reduce the price of mobile services in Europe to manage a price fall.

Question 7

In the present case, European Union believed that data roaming charges were an example of market failure and the main reason behind this perception is that companies have failed to generate appropriate demand for mobile data services in different countries of Europe in comparison to the availability of supply (Jabbarzadeh, Fahimnia and Sheu, 2017). Moreover, mobile service providers were also failed to predict the market demand within highly competitive market trends that has to lead to a negative impact on the revenue generation capabilities of different companies. Therefore, data roaming charges were an example of market failure.

Question 8

As per the case, consumers in the European Union were always worried about the increased mobile bills due to roaming charges of service networks. Moreover, data service providers in the European Union were also facing the problem of surplus capacity. This situation was treated as a market failure, but it cannot be resolved by the taxation and subsidy because of its facilities short term benefits to consumers and companies. However, the declaration of no roaming charges could help companies to increase the demand for mobile data service (Negahban and Smith, 2016). It will provide new business opportunities to the company in the form of value-added services, and other supportive services that could enhance the revenue of companies so as network providers would be able to manage the loss of revenue that is incurred through the cancellation of roaming charges.

Question 9

The present case has determined that many mobile phone users who are travelling in the European Union have faced additional charges of roaming in their bills for the usage of mobile calls, data, and other services. However, most of the users are unaware of the additional charges. Therefore, mobile service providers have failed to exercised social and ethical responsibility with regards to data roaming charges because the company has not provided appropriate information about roaming charges and other services (Spiethand Schneider, 2016). These unethical practices create several difficulties for the mobile user while the payment of their bills. It would create a negative image of the brand and market position of companies. By informing about the additional charges of data services to customers through mobile text and messages, mobile network service providers could promote ethical business operations because customers could be aware of the roaming areas so as they could control their usage to manage their bills.

Part C

Question 10

With consideration of FRED data of Real Private Final Consumption and Real Gross Domestic Product, the evaluation of the United Kingdom’s economic trends are carried out the below-mentioned chart that also determines the impact on recession:

As per the above chart, there is a perfect correlation identified in the UK’s data of Real Private Final Consumption and Real Gross Domestic Product. There is a positive and upward trend identified in two national performance indicators that shows simultaneous growth in the UK’s GDP with Real Private Final Consumption between the periods of 1995 to 2007. However, the country has faced a reduction in the GDP figures during 2008 and 2009 due to the worldwide recession. The recession had negatively affected the GDP and Real Private Final Consumption that implanted significant implications on the tax collection practices of government authorities and many more. This is because the revenue generation process within the country is highly dependent on income and expenditure flow that would have signed on the overall economic growth and income of people. After 2009, the country has maintained slow and stable economic recovery within Real Private Final Consumption and GDP because the above chart is showing the upward trends since the downfall of 2008-2009. Therefore, a country’s consumption pattern is highly correlated with the GDP of the country.

Question 11

In the context of the Aggregate Demand and Aggregate Supply Model, the aggregate supply is termed as the total amount of goods and services that different companies are willing to sell at a certain price in a country (Mankiw, Taylor and Ashwin, 2016). On the other hand, the aggregate demand is termed as the total amount of goods and services that would be purchased in the country at all possible price levels. It plays a key role in determining the economic trends.

The above AS-AD model shows the output (Y) on the x-axis and price (P) on the y-axis. Therefore, the aggregate supply and aggregate demand are graphed together for determining a certain level equilibrium. In the context of the present case, the economic growth of the country encourages the market demand and supply of goods and services so as all curves shift to the right because it would enhance the prices (Hu and Feng, 2017). Therefore, the economic growth of a country could be considered as an important driver of inflation.

Question 12

In the context of contemporary economic conditions, the aggregate demand and aggregate supply lead to a significant impact on the GDP of the country, and other economic indicators. However, the GDP growth rate seems an important indicator of the overall economic efficiency of a country. In the case of the UK, UK’s referendum results of 23rd June 2016 (commonly referred to as Brexit) have encouraged several market uncertainties for local authorities and other companies that are situated in UK and EU. It leads to a direct impact on the country’s aggregate demand and aggregate supply because companies have to implement significant changes in their organisational structure and trade practices within the European Union. All these elements directly affect the UK’s GDP growth rate.

As per the above chart, there is a downward trend identified in the GDP growth rate between the period of 2014 -2019 before and after the announcement of GDP. Before the announcement of Brexit, the assessment of GDP data has determined nominal ups and downs. However, UK has faced a huge downfall in the GDP growth rate from 2015 to 2018 which shows the announcement of Brexit has left a huge impact on the aggregate demand and aggregate supply of the country that has adversely affected the GDP growth rate.

3. Conclusion

As per the above assessment, this report concludes different microeconomics factors like market demand and consumption patterns of consumers are playing a critical role in the formulation of different business policies related to product pricing, branding, and supply. This report has found that Apple’s rebranding strategy would help the company in increasing the revenue of the company. Moreover, the demand and supply diagram has found a great approach to evaluate different aspects of data roaming related market failure in the European Union.

Reference

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Jabbarzadeh, A., Fahimnia, B., and Sheu, J. B. (2017). An enhanced robustness approach for managing supply and demand uncertainties. International Journal of Production Economics, 183, 620-631.

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