Final Economics Assignment

Assignme
nt 1
Demand Forecasting
Roll # 18010050, 18010021, 18010014,

18010008, 18010040
LUMS- MBA CLASS OF 2018
Managerial Economics
Assignment 1
DR # 11
Industry: Information Technology
Product: Apples iPhone
Which product did you choose and why?

Apples IPhone is selected for this study because:
IPhone introduced a new way to interact with computers. It went away from convention and introduced
a simple screen keyboard. It has its own operating system of IOS and an app store which has a friendlier
user interface.
How would you define the market for this product?

iPhone market can be defined as catering to a number of entities which includes;
Teenagers who are attracted by new technologies. Business people who can use it to communicate more
effectively with their clients. Adults who use it for their everyday needs.
IPhone Market in Pakistan
Android is Pakistans top smartphone OS with 68 percent share just among smartphone users.
IOS is second on 24 percent share; Windows Phone is third on eight percent.
Samsung is the top brand; iPhone is second; homegrown phone-maker QMobile is third.
Factors affecting Demand of iPhone Positively
Buyers taste and preferences affects the demand for Apple iPhone. An increase in popularity of the
brand will increase the demand for the smart phone.

Changes in income levels also affect the demand for Apple iPhone. For example, as people in Singapore
are getting richer with higher levels if income due to the improved performance of the economy, their
demand of the Apple iPhone is increasing

Apples brand image affects positively the demand of iPhone. Customers of others Apples products tend
to be faithful to the brand purchasing an Apple smartphone, and tending to recommend it to family and
friends.
Factors affecting Demand of iPhone Negatively
The demand for iPhone depends on the price. If the price is high people tend not to buy it which
decreases demand however if the price falls, the demand for iPhones will increase.
There is an effect on the demand caused by substitutes. During the first launch of iPhones, there was a
big technology gap between the iPhone and its competitors, but in the latest years there are numbers of
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Assignment 1
DR # 11
close substitutes of it. For this reason the demand of iPhone decreased during the launch of new
competitors products with same level of technology or better (Example: Launch of Samsung S7 )
As iPhone hasnt entered Pakistan market officially so lack of warranty and aftersales support in
Pakistan is affecting its demand negatively.
Factors affecting Supply of iPhone Positively
Mobile network operators have entered in the market of selling iPhones through their distribution
network. This has positively affected supply of iPhone in the country.

Emerging e-commerce space in the country has pushed iPhone supply as many e-commerce players like
Daraz.pk, Telemark.pk etc. are supplying iPhone at customers doorsteps.

A large number of retailers have jumped into sales and distribution of iPhone in Pakistan (as Apple
hasnt entered Pakistan officially). This is affecting supply positively.
Factors affecting Supply of iPhone Negatively
Absence of official Apples presence in Pakistan is the main reason thats affecting iPhones supply in the
country.
Cost of production affects supply of Apple iPhones. If Apple manages to reduce its cost of production
for its products through innovative use of technology, supply for Apples iPhone will increase.
Government import rules & regulations are also affecting iPhones supply negatively.
Sensitivity Analysis
Sensitivity analysis can be conducted to assess the risk of drastic changes in the variables of any model.
It will assess the assumptions in any model and determine how likely they are to change
For the iPhone, a sensitivity analysis of demand would be most useful as the demand of the Iphone
depends on several assumptions that need to hold true for the demand function to be effective
Demand = k +a.preference + b.income level - c.price + d.competiton + e.dealership +
f.brand loyalty + g.network infrastructure + h.applications + i.complimentary goods -
j.import duty - h.security situation

The k indicated the effect of all factors that have not been included in the analysis. The
letters before each factor denote the coefficient and hence the change in demand due to a
change in the factor. An explanation of each factor is given in the table below :-
Customer
Positive impact as customers prefer Iphone for its features but negative impact as
preference
Income level
customers prefer cheaper phones with bigger screens.

Higher income levels will have a positive impact as customers will be willing to
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Assignment 1
DR # 11
Price
buy an expensive phone with more disposable income

Apple maintains an average standard price for the Iphone, If price rises then it will
Competition
have a negative impact on quantity demanded as customers will opt for alternatives
Market for smartphones is getting more competitive as local players like Q mobile
Official dealership
are dominating market share. Increase in competition would decrease demand

An official dealership in Pakistan would have a positive impact on demand as the
Brand loyalty
dealership would increase supply and after sales services

Apple has a strong brand loyalty as consumers repeat purchases by getting the
latest Iphone. This could be impacted suddenly by an case that affects the image of
Network
Apple such as exploitative labor practice or environmentally unfriendly practices.

Positive impact as more network towers are setup. Site sharing (one tower for
infrastructure
multiple networks) has started in Pakistan and this greatly increases smartphone
Applications
demand as more people can have access to the internet

New applications (mobile apps) development will lead to more demand for the
Complimentary
iPhone as apps will be used more in businesses as well as by individual consumers

Increase demand for the product as can be seen by the launch of the VR(virtual
goods
reality headset) that was given free with every new Samsung phone. Customers
Import duty
purchased the phone only to get the headset

Increase in import duty will increase price and hence have a negative impact on
demand. Pakistans budget of 2015-2016 almost doubled the tax on import of
Security situation
mobile phones and this will have an expected negative impact on demand
Deterioration in the security and political situation will have a negative impact on
demand. E.g. increase in mobile snatching will motivate people to buy cheaper
phones.
Price Elasticity Data for IPhone in Pakistan

Page 3 of 6
Assignment 1
DR # 11
Year
Average
Price
(USD)
Units Sold
(millions)
2011
2012
2013
2014
2015
2.85
2.83
2.82
2.83
2.86
1.26
1.50
1.58
1.63
1.74
Change
in
Quantity
Sold
Change
in Unit
Price
Price
Elasticity
Coefficient
0.24
0.08
0.05
0.11
0.02
0.01
0.01
0.03
12
8
5
3.7
Income Elasticity Data for IPhone in Pakistan

Year
Demand
(million)
2011
2012
2013
2014
2015
1.55
1.53
1.52
1.53
1.56
Annual
Income Per
Capita
(USD)
2.97
3.05
3.1
3.14
3.18
Change
in
Income
Change
in
Demand
Income
Elasticity
Coefficient
0.08
0.04
0.13
0.04
0.02
0.01
0.01
0.03
4
4
13
1.3
Based on the information given above:
Estimated average price elasticity for the iPhone is 7.2. This implies that for a unit decrease in price,
quantity demanded will increase by 7.2 units.

Estimated average income elasticity of demand for the iPhone is 5.58, this implies that for a unit
increase in income, quantity demanded for iPhone will increase by 5.58 units.
Page 4 of 6
Assignment 1
DR # 11
References
Kelly, H. (2012, June 30). 5 ways the iPhone changed our lives. Retrieved from CNN:
http://edition.cnn.com/2012/06/28/tech/mobile/iphone-5-years-anniversary/
Millward, S. (2014, July 11). A snapshot of smartphone usage in Pakistan in 2014
(INFOGRAPHIC). Retrieved from TechinAsia:
https://www.techinasia.com/smartphones-in-pakistan-infographic-2014
Smith, J. (2016, January 7). iPhone vs Android: 15 Reasons iPhone is Better. Retrieved
from GottabeMobile: http://www.gottabemobile.com/2016/07/01/iphone-vs-android2016-iphone-better/
http://www.statista.com/statistics/263401/global-apple-iphone-sales-since-3rd-quarter2007/
https://www.google.com.pk/search?
q=iphone+price+history&biw=1600&bih=799&tbm=isch&tbo=u&source=univ&sa
=X&ved=0ahUKEwjE2rOq3uTOAhVCLhoKHaHzBR8QsAQIGA#tbm=isch&q=averag
e+iphone+price+yearwise&imgrc=uwwoBgc2RzHSDM%3A
https://www.google.com.pk/search?
q=gross+national+income+per+capita+in+pakistan&espv=2&biw=1600&bih=79
9&source=lnms&tbm=isch&sa=X&ved=0ahUKEwj0lICmuTOAhXJuY8KHYdYBuEQ_AUIBigB#imgrc=V29YWBIqPYYhmM%3A
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Assignme

Roll # 18010050, 18010021, 18010014,

Industry: Information Technology

Product: Apples iPhone

Which product did you choose and why?

How would you define the market for this product?

IPhone Market in Pakistan

Factors affecting Demand of iPhone Positively

brand will increase the demand for the smart phone.

demand of the Apple iPhone is increasing

Factors affecting Demand of iPhone Negatively

Factors affecting Supply of iPhone Positively

network. This has positively affected supply of iPhone in the country.

Daraz.pk, Telemark.pk etc. are supplying iPhone at customers doorsteps.

Factors affecting Supply of iPhone Negatively

j.import duty - h.security situation

customers prefer cheaper phones with bigger screens.

buy an expensive phone with more disposable income

are dominating market share. Increase in competition would decrease demand

dealership would increase supply and after sales services

Apple such as exploitative labor practice or environmentally unfriendly practices.

demand as more people can have access to the internet

iPhone as apps will be used more in businesses as well as by individual consumers

purchased the phone only to get the headset

Price Elasticity Data for IPhone in Pakistan

Income Elasticity Data for IPhone in Pakistan

Based on the information given above:

quantity demanded will increase by 7.2 units.

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