Question

Parts necessary to make the Apple iphone have become more expensive because of the Novel Coronavirus and trade tariffs. The Samsung Galaxy Note phone has not been affected by these events. Show and explain how this has affected the market for Apple iPhones and the market for Samsung Galaxy Notes.

Answer 1

The parts of apple iphone have become expensive. This would mean that the overall cost of production has increased for apple iphones. It would also mean the sellers would try to transfer the cost and hence there would be an increase in the prices of the good.

When the price increases, the demand would reduce. There are similar phones in the market and hence people who are not brand loyal would want to shift to other products.

In USA, Apple, Samsung and LG are popular brands. So it is assumed that since the demand for apple iphones would be reducing, it would affect the substitute goods in a positive way. The demand for samsung phones would increase because of the shift of consumers from apple to samsung.

The demand for samsung note has shifted from D to D', increasing the quantity.

Any increase in price of substitute good increases demand of the good, which would be experienced here.