Part A – Microeconomics

Apple’s iPhone 11 Has a New Feature: A Lower Price

By Jack Nicas and Brian X. Chen, September 10, 2019

The iPhone 11, Apple’s entry-level phone, will start at $700, compared with $750 for the comparable model last year.

Tim Cook speaking about the iPhone 11 Pro. CreditCreditJim Wilson/The New York Times

Here are the highlights:

CUPERTINO, Calif. — Apple’s product launches have long been full of surprises, but rarely has a price cut been among them.

On Tuesday, in a sign that Apple is paying attention to consumers who aren’t racing to buy more expensive phones, the company said the iPhone 11, its entry-level phone, would start at $700, compared with $750 for the comparable model last year.

Apple kept the starting prices of its more advanced models, the iPhone 11 Pro and iPhone 11 Pro Max, at $1,000 and $1,100. The company unveiled the new phones at a 90-minute press event at its Silicon Valley campus.

The cost cut on the iPhone 11 was unexpected because Apple had been raising prices each year as a way to keep revenues afloat while iPhone sales fell. But Apple might have hit the ceiling this past year. Sales of the two models that began at $1,000 or more lagged expectations, causing the company to cut revenue estimates and eventually slash prices in China to increase demand.

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At the same time, Apple’s entry-level phone last year — the iPhone XR, at $750 — became the company’s best-selling device.

Analysts say that one issue with the rising prices has been that new iPhone features haven’t kept up. As a result, many people are holding onto their phones longer. The falling price suggests Apple sees that trend and is trying to entice more people to upgrade.

Apple said it would also still sell older models for even less. The iPhone 8 now costs $450 and the iPhone XR now costs $600.

Rebranding its priciest iPhones as “Pro” models.

Apple has rebranded its iPhone line to make the iPhone 11 its entry-level option, while adding a “Pro” label to its more expensive models.

The move is a departure from Apple’s previous marketing strategy, which gave the cheapest phone a different label that branded it as the discounted model. (It still started at $750.) The iPhone XR became Apple’s best-selling iPhone, while its more expensive models struggled in some markets. Those lagging sales caused Apple to cut revenue estimates earlier this year.

The iPhone XR also likely outperformed its costlier cousins in part because tech reviewers considered it to be about as good as the flagship iPhone — for 25 percent less. Apple has long been in a bind on pricing and developing its line of iPhones, aiming to make the least expensive devices still worth paying hundreds of dollars for without undercutting the pricier models.

The rebranding suggests Apple is embracing the lowest-priced iPhone as the device most people will use, while marketing the “Pro” devices for the higher end of the market. The company has done the same with its iPads, also labeling its most advanced tablets the iPad Pro.

Apple introduces a trio of new iPhones.

The company introduced three new phones: the iPhone 11, iPhone 11 Pro and the iPhone 11 Pro Max. The main difference? Each of the three iPhones gained a new camera lens.

The new high-end Pro models include a triple-lens main camera, up from two lenses in last year’s models, and the entry-level iPhone now has a dual-lens camera, up from a single lens in last year’s iPhone XR. All the iPhones include a so-called ultrawide angle lens.

Here’s what that means: The new ultrawide lens take photos with a wider field of view than traditional phone cameras, which makes it handy for shooting landscapes or large group gatherings. Samsung’s Galaxy S10, which was released this year, also includes an ultrawide angle lens.

The second lens on the entry-level iPhone will also make the camera more capable of shooting photos in portrait mode, which puts the picture’s main subject in sharp focus while softly blurring the background.

Last year’s iPhone XR had a single lens and was capable of shooting portrait photos of only human subjects. The second lens in the new entry-level iPhone will let you take portrait shots of nonhuman subjects like food, animals and plants.

On the high-end iPhones, the triple-lens system lets users zoom in closer on their subjects. Apple also said it had added a night mode for shooting photos in low light. By default, when users shoot photos in the dark, the camera will automatically make photos look better lit.

With its focus on camera tech, Apple is playing catch-up with Google. Google’s Pixel smartphones focus on camera innovations including Night Sight, a popular feature for shooting photos in low light, which led critics to conclude that the search giant had used its prowess in artificial intelligence to surpass Apple in camera tech.

Here’s a new version of the Apple Watch.

Stan Ng, Apple’s vice president for product marketing, Apple Watch.CreditJim Wilson/The New York Times

Apple detailed the Apple Watch Series 5. The watch’s most noteworthy new feature is its so-called always-on display. In previous models, the screen would turn on when you tilted your wrist to check the time.

The new watch uses a display technology (previously seen in Samsung phones) to keep some pixels activated just to show the time, consuming little power. The screen becomes fully illuminated when you tilt your wrist. Other updates to the watch, including a built-in compass, were minor. The watch starts at $400, the same price as the last model. It will be available on Sept. 20.

Apple introduces a new iPad.

The company introduced a new version of its entry-level iPad, which costs $330. The new model includes a 10.2-inch screen, up from 9.7 inches. Unlike the previous model, the new tablet is compatible with Apple’s Smart Keyboard. (Previous iPads worked only with third-party keyboards.)

The updated iPad is unremarkable compared with Apple’s high-end iPad Pros, which include sharper screens and infrared face recognition and work with a more advanced Apple stylus. However, the entry-level iPad is Apple’s best-selling tablet, and its investment in the entry-level model shows the company’s commitment to the category even though its sales have slowed down.

The streaming service starts Nov. 1.

Tim Cook speaking about “The Morning Show.”CreditJim Wilson/The New York Times

At last, Apple’s original television shows have a premiere date and price point. The company’s chief executive, Tim Cook, announced that Apple would begin rolling out original shows and movies on Nov. 1 for $5 per month.

Apple TV Plus, which will be the home of all of Apple’s original content, will be free for a year to users who buy a company product like a new iPhone or a laptop.

Apple announced that on Nov. 1, it would feature a lineup of adult dramas, comedies, children’s programs and documentaries. Those series include four shows the company has released trailers for, including “The Morning Show,” starring Jennifer Aniston, Reese Witherspoon and Steve Carrell; “Dickinson,” a comedy starring Hailee Steinfeld and Jane Krakowski; “See,” an epic drama starring Jason Momoa; and “For All Mankind,” a space drama. The launch will also feature other programs, including Oprah Winfrey’s new book club, a Peanuts series called “Snoopy in Space” and a documentary that Apple bought the rights to last year called “The Elephant Queen.”

By year’s end, Apple will have six subscription services, from news to TV to music. Customers who wanted all of them would pay up to $55 a month.

The launch date puts Apple in the thick of the so-called streaming wars, which have consumed Hollywood. Disney is rolling out its new streaming service, Disney Plus, on Nov. 12. AT&T’s Warner Media, the home of HBO, Warner Bros. and the DC comic universe, will introduce its own streaming service next year, and will announce new details for it on Oct. 29.

The monthly price makes it cheaper than Disney’s service, which will be $7 a month, and is well below Netflix, which is $13 per month.

But questions linger: How will Apple market these programs in the coming months? Which shows will be introduced from the get-go? And will Apple drop all episodes of new series at once like Netflix does, or will it roll them out once a week?

— John Koblin

The gaming service, Apple Arcade, will be $5 a month.

Ann Thai, product lead for Apple, onstage at the Steve Jobs Theater at Apple Park in Cupertino, Calif.CreditJim Wilson/The New York Times

Apple announced it was getting into gaming earlier this year. Now we know how much its subscription will cost: $5 a month.

The company said its gaming service, Apple Arcade, would be available starting Sept. 19 in more than 150 countries. The service will give users access to more than 100 games that aren’t available elsewhere. The games can be played on iPhones, iPads, Macs and on Apple TV.

Apple showed off several of the games on Tuesday, including an undersea-exploration game from the Japanese game maker Capcom and an updated version of the arcade classic Frogger.

Apple Arcade is part of a larger strategy by the company to create a steady, more predictable revenue stream from services as sales of iPhones continue to slide. Apple has also added subscription services for news, music and streaming video.

Apple spent hundreds of millions of dollars to fund the development of new games for Apple Arcade, The Financial Times reported in April. Analysts expect gaming could become a major moneymaker for Apple within the next several years. HSBC analysts forecast its revenues to reach $2.7 billion by 2022, outpacing the company’s news and video subscription services.

End of article

Questions: (30 marks)

  • Why is an understanding of the price elasticity of demand important for a firm like Apple when launching a new product?
  • What do you think are the main determinants of the price elasticity of demand for the Apple iPhone?
  • According to the article, Apple launched the iPhone 11 at a price of $700. Assume sales in the first year following launch generated 10 million units in sales. In the second year, Apple reduces the price to $525 and sales that year total 14 million units. Calculate the price elasticity of demand for the iPhone 11 based on these figures. Did Apple benefit in terms of revenue from reducing prices? Explain.
  • Given the low barriers to entry and exit in the games industry, can Apple Arcade gain a competitive advantage over their rivals? Explain with the use of a perfectly competitive market model.
  • To what extent does Apple’s rebranding strategy support its brand position against competitors?

Part B – Microeconomics

Mobile Roaming Charges

Prior to June 2017, many mobile phone users across Europe faced different prices for accessing the same services when travelling to another country in Europe. For example, a UK phone user may have had a tariff which included unlimited texts and minutes and an allowance on the amount of data used in the UK but when travelling to Spain, would have faced additional charges on data roaming. In some cases, users who were unaware of data roaming charges faced significant bills when returning home for having sent texts, images, downloading data and making calls home. For the service providers, this option allowed them to be able to increase revenues, albeit that many customers clearly did not like the idea.

European Union regulators also didn’t like the idea. It was argued that mobile data roaming charges were an example of market failure, and plans had been put in place to have them abolished. These plans came to fruition in June 2017. A joint press statement from the European Union and the European Commission noted that ‘The end of roaming charges is a true European success story… Over the last 10 years, our institutions have been working hard together to fix the market failure. Each time a European citizen crossed an EU border, be it for holidays, work, studies or just for a day, they had to worry about using mobile phones and a high phone bill from the roaming charges when they came home. Roaming charges will now be a thing of the past. As of tomorrow, [15 June] you will be able to remain connected while travelling in the EU, for the same price as at home.”

End of article

Source: Europa.eu/rapid/press-release_STATEMENT-17-1590_en.htm

Questions (20 marks)

  • Describe using appropriate supply and demand diagrams, how the existence of data roaming charges affected both consumer and producer surplus in the mobile phone market.
  • Why do you think the European Union believed that data roaming charges was an example of market failure?
  • Could the European Union have used a tax or subsidy to correct the market failure in this particular case? Justify your argument.
  • Should mobile phone services providers have exercised social and ethical responsibility with regards to data roaming charges and not even have introduced them in the first place? Justify your argument.

Part C – Macroeconomics (35 marks)

  • Download annual UK data on consumption (real personal consumption) and real GDP (real Gross Domestic product) from 1995 until 2018 from FRED and include both in the same graph. Overlay recession bars and copy the graph into your Word document.

Describe the trends in the graph over time and comment on the recession periods.

  • Use the model of aggregate demand and aggregate supply to help illustrate why inflation might be expected to accelerate when economic growth is rising.
  • To what extent do you think the model of aggregate demand and aggregate supply can accurately explain what is happening to key economic indicators since the UK referendum results of 23rd June 2016 – commonly referred to as Brexit?

Introduction, Conclusion and References (15 marks)

The following are key factors that are taken into account in the assessment of a report:

  1. Evidence for extensive and in-depth reading of relevant literature (journal articles, textbooks, and other relevant sources)
  2. Understanding of the subject, as demonstrated by the ability to clearly explain the issues involved and an awareness of alternative views on the topic.
  3. Thorough grasp of theories and/or theoretical models (where appropriate) relevant to the topic, the use of relevant concepts and (where appropriate) the use of diagrammatic analysis and/or equations.
  4. Good use of comprehensive, relevant, accurate and up-to-date factual/statistical material (where this is appropriate).
  5. Ability to think and to reason logically and consistently in the writing of the report.
  6. Good use of a wide range of academic sources in the writing of the report, all of which have been fully and comprehensively referenced in the bibliography.
  7. Ability to write in clear and grammatically-correct English, with proper use of paragraphs including both an opening/introductory paragraph that sets the scene and concluding paragraph bringing together the issues discussed is the report.
  8. Ability to come to a clear set of independent, yet intelligent and well informed, conclusions that derive from the arguments contained in the rest of the report and the evidence cited.
  9. The use of good written and communication skills in the presentation of the report, including typing, spelling, punctuation, sentence construction, the drawing of tables, the presentation of statistical material, the use of footnotes and the overall lay-out of the report.