Tablet Computer Market Analysis (Economics)

Topics: Supply and demand, Consumer theory, Price elasticity of demand Pages: 9 (2769 words) Published: November 27, 2012
EC180 Economics Assignment

Tablet Computers Market

Table of Contents

Table of Contents2
Brief Introduction3
1. Factors affecting Demand4
2. Price and Income Elasticity6
3. Price Discrimination8
4. Fixed and Variable costs9
5. Scale Economies10
7. Market Structure12
8. Barriers to Entry13
Summary and Conclusion14

Brief Introduction

In this report, the market of ‘Tablet Computers’ will be analysed. ‘A tablet computer is a complete mobile computer, larger than a mobile phone or personal digital assistant, integrated into a flat touch screen and primarily operated by touching the screen’ Editors PC magazine (2010).These products are gaining increased popularity in today’s world. Apple, Microsoft and Lenova are already in this market, with Apple’s popular product, the ‘I pad’ leading the market share. This relatively new market `will be thoroughly investigated using various microeconomic theories and findings.

1. Factors affecting Demand

In economics, demand is defined by the desire to own anything, the ability to pay for it, and the willingness to pay (Sullivan & Sheffrin,2003a) The diagram below shows the demand curve. Factors affecting demand would cause a shift in the demand curve. An increase in demand will cause an outward shift to the demand curve (D1 > D2), thus increasing the market equilibrium price. A decrease in demand on the other hand will cause an inward shift of the demand curve ( D1 > D3), decreasing the market equilibrium price. The diagram proves the ‘Law of Demand’ which states that quantity demanded for a good decreases as the prices increases.

The following are the factors that affect the demand of a good or service. * Price
* Income
* Substitutes: Price of substitutes
* Trend
* Number of consumers in the market/ population

Price: One of the main factors affecting demand would be the Price of the product or service. There is an inverse relationship between the price of the product and it’s quantity demanded. As the “Law of Demand” says, the quantity demanded for a product decreases as it’s price increases. Therefore the higher the price of tablet computers the lower the quantity demanded. Income: Another major factor which affects the demand for a good would be consumers’ income. The higher the income, the higher the demand as consumers will have more disposable income. Tablet computers are a relatively pricey and a luxurious good, therefore only consumers with a relatively high income will be able to afford them. Price of substitutes: The price of substitutes of this product would also be a factor affecting the demand for the product. A substitute good offers the same services to the consumer as good A, if the price of a substitute good would increase, the demand for the original good would increase as consumers want to pay the least they can for the same product. Therefore an increase in the price of for e.g. Laptops would cause an increase in the demand for Tablet computers.

2. Price and Income Elasticity

Price elasticity of demand measures the relationship between a change in quantity demanded and a change in the Price.It shows the percentage change in quantity demanded caused by a percentage change in price. This can show the extent of movement along the demand curve.

PED = % Change in quantity demanded
% Change in price
There are a number of factors which can influence the price elasticity of a good: Availability of substitutes- One major factor of influencing the price elasticity of a good would be the availability of its substitutes. The greater the availability, the greater the elasticity. The availability of substitutes like Laptops and Desktops in this market is quite high, therefore tablet computers have a high price elasticity. Necessity or Luxury- Luxury products tend to have a greater elasticity as consumers don’t actually ‘need’ them. Necassity...

References: Carlton D. and Perloff M, "Modern Industrial Organization" Fourth Edition, 2005
Editors PC Magazine. "Definition of: tablet computer".PC Magazine. Accessed April 17, 2010.
Krugman, Paul R.; Maurice Obstfeld (2003). "Chapter 6: Economies of Scale, Imperfect Competition and International Trade". International Economics - Theory and Policy (6th ed.). p. 142.
Sullivan, Arthur; Steven M. Sheffrin (2003a). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. pp. 79. 
Sullivan, arthur; Steven M. Sheffrin (2003b). Economics: Principles in action. Upper Saddle River, New Jersey 07458: Pearson Prentice Hall. pp. 157.
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