Principles of Economics- iPad Air 2
Read the following case and answer all the questions below:
iPad Air 2 Case
It was hard to see how Apple could improve on the first iPad Air – arguably the finest tablet ever produced – and now it has done so with the iPad Air 2, which has recently come onto the rather crowded market for tablet computers. There’s the question of where the iPad Air 2 sits in this market, as it’s US$829 for the basic version, and you can pay up to US$829 for the fully spec’d, Wi-Fi + 4G model. But while that cost is high, it’s not much more than is being charged by Samsung or Sony for their tablets. We can clearly expect these competitors to revise their offerings over the next year or so to compete with this latest Apple.
Apple have been world market leaders in this area for some time now, so some people can be expected to buy the new model whatever its spec – but others will be looking at the price more keenly. Does the iPad Air 2’s design & spec warrant the high price tag? Yes, more than any other tablet on the market it brings a premium build, quality finish, great looks and while it doesn’t need to be this thin, the structure doesn’t seem to have had an effect on the actual performance of the tablet, and it does add something in the palm. Where the Apple device wins though is the overall packaging. Samsung’s offering is good, but it’s clearly an assemblage of distinct parts. The iPad Air 2 is a complete package, smooth and easy to hold in one hand. And it has the smart feel that we have come to associate with the Apple brand. Principles of Economics- iPad Air 2
Is the iPad Air 2 more powerful than the previous model? Not really – there seem to be few reasons for the improved A8X chip beyond a much faster interface and the promise of better apps and games to come – we’ll have to see just how much better these new games & apps are and how much they will cost to install.
The iPad Air 2 feels like a very solid tablet that can be held easily for hours without it getting uncomfortable. The iPad Air was hardly a big tablet, and the Samsung Galaxy Tab S matches the iPad Air 2 in weight, if not thickness. Such features seem to be what the current market wants, and is prepared to pay for.
Apple designs in the US, but it manufactures in China – or rather its sub-contractors tend to be located in China where levels of expertise and capacity now tend to be better reasons for collaboration than the low labour costs of earlier years. Competition is fierce between these contractors and Apple appears to have been very successful in playing one off against the other to get keen prices. Of course, quality control is crucial in this area – Apple can’t afford the dent in its reputation which quality problems in a new product launch would bring. But these Chinese manufacturers now have the scope and size to offer both high quality and keen prices.
Of course these manufacturers have been vulnerable to the global fall in demand associated with the recent downturn in most Western economies, so they have been eager to maintain the high levels of production which can justify their earlier investments in plant and equipment, not to say in their highly trained labour forces. Apple – like the other 1st world multinationals – has not been slow to appreciate this and use it to its advantage when negotiating supply contracts.
Apple has a reputation for restricting the availability of a new product in the days following its launch. All this adds to the Apple mystique, but it does mean that some of the people who queued overnight to be the first to buy have been able to offer their purchases on sites such as e-Bay at premium prices to Apple afficionadoes who missed out in the original launch. How long these premium prices will hold on this “secondary” market is anybody’s guess, but having a surge in demand on release day has become an Apple tradition. Other brands can be expected to appear at knocked-down discount prices before the launch of an upgrade, but, again, this is not what we have come to expect of Apple.
In total there are 50 marks available for this section. The marks for each question are given at the end. It is important to answer each question as fully as possible. Marks will be awarded for clarity of economics analysis and, where appropriate, for the use of correctly labelled diagrams.
- What determines the demand for the Apple iPad Air 2? What determines the elasticity of this demand and how may this change as the product matures? (15 marks)
- What sort of market structure does Apple sell in? What are the characteristics of this market structure? (10 marks)
- How has Apple been able to manipulate the market for its products? (5 marks)
- Why does Apple sub-contract its manufacturing to companies in the Peoples’ Republic of China? How is Apple able to strike hard bargains with its suppliers? (10 marks)
- If there is excess demand for new Apple products at their launch, does this imply that the launch price is too low? What does this say about whether Apple is a profit-maximiser? (10 marks)