Supply and Demand and Dell Laptops

1. 1 Origin of the report As a part of the ‘Principles of Microeconomics’ course, this report has been assigned to me by our respected Professor Dr. A. K. M. Saiful Majid as a term paper. The topic has been decided after consultation with our course instructor and have been asked to submit an elaborate report on the topic. 1. 2 Objectives and scopes * Analyzing the demand and supply of Dell laptops. * Analyzing the current market situation of Dell laptops. * Analyzing the factors affecting the demand and supply of Dell laptops in Dhaka city. Analyzing the price elasticity of demand and supply of Dell laptops. 1. 3 Methodology The data needed to prepare this report was basically learned from the course and the workshop held by the instructor. The methodology used are follows Primary Data Source Secondary Data Source: 1. 4 Limitations While doing the term paper, I faced some obstacles. These are given below:- * The main limitation was the unavailability of information and its confidential nature. * Time constraint was a big problem in preparing the report. Another limitation of this report is organization’s policy of not disclosing some data and information for obvious reason, which could be very much useful. * Lack of experience of this type project. * Minimum knowledge on Economics(half a semester). 2. 1 Product background A laptop, also called a notebook, is a personal computer for mobile use. A laptop integrates most of the typical components of a desktop computer, including a display, a keyboard, a pointing device (a touchpad, also known as a trackpad, and/or a pointing stick) and speakers into a single unit. A laptop is powered by mains electricity via an AC adapter, and can be used away from an outlet using a rechargeable battery. Portable computers, originally monochrome CRT-based and developed into the modern laptops, and were originally considered to be a small niche market, mostly for specialized field applications such as the military, accountants and sales representatives. As portable computers became smaller, lighter, cheaper, more powerful and as screens became larger and of better quality, laptops became very widely used for all sorts of purposes. The basic components of laptops are similar in function to their desktop counterparts, but are miniaturized, adapted to mobile use, and designed for low power consumption. Because of the additional requirements, laptop components are usually of inferior performance compared to similarly priced desktop parts. Furthermore, the design bounds on power, size, and cooling of laptops limit the maximum performance of laptop parts compared to that of desktop components. Bangladesh started importing laptops as early as 2002. Imports figures were not found accurately. 2. 2 Company background Dell, Inc. s an American multinational information technology corporation based in 1 Dell Way, Round Rock, Texas, United States, that develops, sells and supports computers and related products and services. Bearing the name of its founder, Michael Dell, the company is one of the largest technological corporations in the world, employing more than 103,300 people worldwide. Dell is listed at number 41 in the Fortune 500 list. [ Dell's headquarters is located in Austin, Texas. As of 2010 the company employs about 16,000 people in the facility, which has 2,100,000 square feet (200,000 m2) of space. As of 1999 almost half of the general fund of the City of Round Rock originates from sales taxes generated from the Dell headquarters. A board of directors of nine people runs the company. Michael Dell, the founder of the company, serves as chairman of the board and chief executive officer. Dell advertisements have appeared in several types of media including television, the Internet, magazines, catalogs and newspapers. Some of Dell Inc's marketing strategies include lowering prices at all times of the year, offering free bonus products (such as Dell printers), and offering free shipping in order to encourage more sales and o stave off competitors. In 2006, Dell cut its prices in an effort to maintain its 19. 2% market share. Dell first opened their retail stores in India. Dell started selling their laptops in Bangladesh back in late 2002. Since then they have been able to capture the greater market share(about 29. 91%). 2. 3 Market overview The laptop market can be described with tw o aspects- * The products that different sellers are offering are exactly the same. * The number of sellers and buyers are so numerous that each has a negligible impact o the market price. In economic theory, perfect competition describes markets such that no participants are large enough to have the market power to set the price of a homogeneous product. Because the conditions for perfect competition are strict, there are few if any perfectly competitive markets. Perfect competitive market seems a bit theoretical for Bangladeshi context. By considering these aspects of the laptop market, I concluded that the laptop market is a competitive market. Because each brands are selling laptops with same configuration, consumers have so many choices. Nobody can be a price maker because of the wide range of choices. Figure: Product life cycle 3. 1 Factors influencing demand 3. 2 Shift of demand curve The demand curve shifts in two ways. If any of the factors increases the quantity demanded, it is called an increase in demand and the demand curve shifts to the right. And if any of the factors decreases the quantity demanded, it is called a decrease in demand and the demand curve shifts to the left. Income If income of people in Dhaka city, people will buy more laptops. In that case it becomes a normal good. (i. a good for which, other things equal, an increase in income leads to an increase in demand. ) Price of substitute goods If the price of substitute goods (HP, Acer etc. ) rises, the demand for Dell laptops rises because people tend to shift away from their previous brands. Taste The brand Dell has captured the consumer loyalty of the techno fans of Bangladesh. A large number of this fan base is in Dhaka city. These consumers prefer Dell laptops to many other brands that are available in Bangladesh. Expectations Due to frequent IT and laptop fairs, people expect the price of Dell laptops to fall. So, they are willing to buy more Dell laptops. These fairs lead to a rightward shift of the demand curve. Number of buyers The number of laptop buyers in Dhaka city has increased in a very short span. This leads to a rightward shift of the demand curve. Besides these factors, there are some factors that causes the increase in demand for Dell laptops. IT fairs are frequently arranged in BICC, Agargaon. Dell provides various offers like discount, scratch cards in these fairs. This increases the demand for Dell laptops. IT fairs have increased the demand about 25%. The recent advancement of technology also has a major role in increasing the demand for Dell laptops. Due to recent introduction of Wimax technology in Bangladesh people has easy access to internet in different places. People are responding to this incentive and are buying more and more laptops. Figure: Shift of demand curve 3. 3 Current market demand The relation between the price of Dell laptop and the quantity demanded is negative to its price. Therefore, if the price of Dell laptop increases, the quantity demanded in Dhaka city will decrease and vice versa. Market demand is the sum of all the individual demand. To get the big picture about the market demand, I have surveyed two retail outlets of Dell laptops in Bangladesh- Computer Village and Flora systems. Previously the price of Dell Vostro 3450 was Tk. 55000 Computer Village sold 72 of these laptops and Flora sold 70 of these laptops. That means the market demand was 70 laptops. (Its only for one brand, one model and two showrooms, actually the market demand is the total demand of Bangladesh). The price has gone down to Tk. 49000 and the demand has increased to 80 laptops. A 12. 5% decrease in demand increased 15% quantity of laptop demanded. % Figure: Sale of Flora systems Figure: Sale of Computer Village Figure: Movement along the demand curve 3. 4 Forces influencing supply 3. 5 Shift of supply curve The supply curve shifts in two ways. If any of the factors increases the quantity supplied, the supply curve shifts to the right and vice versa. Number of sellers The more the number of sellers in the market, the larger the supply. The number of laptop buyers is increasing day by day. That is an incentive for the suppliers to come in the market as there is so much opportunity for them. Expectations As the demand is increasing rapidly, the suppliers are expecting that the price of the laptop will go up. That is why they are hoarding laptops to sell it later at a higher price. Technology It allows the producers yield more profit by making the production process more efficient and effective. Input price The production of laptops is more profitable when the components of laptops go up. As a result, supply of laptops increases. Government has introduced its development plan in relation to improvements in the economic conditions in Bangladesh. Digital Bangladesh within 2021 is the biggest example. In recent years, the government has reduced taxes, levied import duties on technology and provided grants for all the industries that have dedicated itself to nationwide technology spread and availability. Introduction of DOEL brand, which is a national company, is another big citation of how government has patronized the laptop market of Bangladesh. To meet the increasing demand, the supply of Dell laptops has increased. This leads to an increase in the supply of Dell laptops. Figure: Shift of supply curve 3. Movement along the supply curve The relation between the price of Dell laptop and the quantity demanded is negative to its price. Therefore, if the price of Dell laptop increases, the quantity demanded in Dhaka city will decrease and vice versa. The relation between the price of Dell laptops and the quantity supplied is positive. Therefore, if the price of Dell laptop increases, the quantity demanded in Dhaka city will incr ease and vice versa. The number of sellers has increased over the years. There are many outlets of Dell like Computer Village and Flora systems. As the number of individual suppliers is increasing, the market supply is also increasing. Due to increase in profits and laptop price, the supply of Dell laptops has increased. Figure: Movement along the supply curve 3. 7 Equilibrium Market price always tend to move towards the point where the demand curve and the supply curve intersects. This point is called the equilibrium point. It is the point where the quantity supplied equals quantity demanded. At this point, buyers are fairly satisfied with the price and sellers are also satisfied with the amount of profit they are making. The price at this point is called the equilibrium price and the quantity supplied or demanded is called the equilibrium quantity. I have calculated weighted average of the whole Dell range keeping certain parameters- * The lowest offering of Dell is Tk. 23,000. * Highest price Tk. 1,75,000. In laptop fair 2011 the lowest price sold 8 units and highest price sold 1 unit. Weighted average = {(8? 23000) + 175000}/ 9 = 40000 So the equilibrium price of Dell laptops is Tk. 40000 and the equilibrium quantity is 9 units for laptop fair 2011. FIGURE:EQUILIBRIUM 4. Price elasticity of Demand: As the buyers can switch to HP and other brands if the price increases, so the demand for Dell laptops are elastic. Laptops of various brands like HP, Acer, Asus, Samsung, Compaq are available in the market. HP provides the consumers with almost the same quality as Dell and brands like Acer and Asus provides the consumers laptops of same configuration at a cheaper price. Dell laptops are attractive, shin y and have sleek metallic body. Also people prefer it because of its comfortable weight and its easy to carry. We can classify Dell laptops as luxury good. The demand for Dell laptops is inelastic over a larger time period. Because if the price of Dell laptops rises, it will take time for buyers to switch to another brand. But, eventually in the long run the price of other similar brands being lower than Dell laptops would have buyers’ interest turning to them. Figure:Elastic demand of Dell 4. 2 Income elasticity of demand and cross price elasticity of demand Dell laptops are normal goods. Higher income raises the quantity demanded. Since Quantity demanded and income move in the same direction, Dell laptops have positive income elasticity. Again, since Dell laptops is a luxury good, it has a relatively larger income elasticity because consumers feel that they can easily switch to other low priced laptops consisting of similar configuration like Acer, Asus etc. Dell laptops has many substitutes like HP and other low priced Acer, Asus, Fujitsu etc. So, if the price of Dell laptops rises, the quantity demanded for these substitute goods will rise and eventually, the cross-price elasticity of demand of Dell laptops will rise (positive). Again, there are many complement goods to Dell laptops like laptop bags, headphones, pen drives, laptop cooler, portable hard disk etc. hat are used along with it. So, if the price of Dell laptops rises, the quantity demanded of these goods would fall and ultimately, the cross-price elasticity of demand of HP will fall (negative). 4. 3 Price elasticity of supply The supply of Dell laptops is almost inelastic i. e. as price changes the quantity demanded of Dell laptops doesn’t change significantly. Sellers have a tendency to keep the supply unchanged whatever is the price. Figure: Inelastic supply Being in a competitive market, Dell cannot set the price. The consumers of Dell are satisfied with the service that it provides. So, most of the consumers are brand loyal and they will stay loyal until the scenario changes drastically. So, it can be said that Dell has a little competitive advantage over its competitiors. The IT sector of Bangladesh is developing in a fair pace. Using computers in educational purposes is increasing rapidly. As laptops are easier to carry and use, it can serve this purpose very well. Government has reduced taxes, levied import duties on technology. Bangladesh has recently started manufacturing laptops to supply the laptops to the ones who cannot afford the costly foreign brands. Bangladesh needs to assemble laptops to increase market growth. Steps should be taken to make the laptops affordable to the general public. 1. www. wikipedia. org 2. www. banglapedia. org 3. www. webbangladesh. org 4. www. thedailystar. net 5. www. prothom-alo. com 6. www. newnation. com 7. Principles of Economics, 3rd Edition, N. Gregory Mankiw 8. The Economist, September 2011 9. Computer Jagat, August 2011 Survey questionnaire 1. Do you use laptop or desktop? – 70% use laptop, 30% use desktop 2. Why do you use laptop? -easy to carry 62. 9%, net use 24. 3%, office work 12. 8% 3. Which brand do you prefer? -29. 91% Dell, 24. 2% HP, 14. 3% acer, 9. 4% Compaq, 8. 6% Samsung, 4. 3% Toshiba, 4. 3%fujitsu, 2. 9% apple 4. Why do you prefer this brand? -38. 6% use for configuration, 24. 3% use for comfort, 21. 4% use for attractive looking, 15. 7% for long last assurance. 5. For which do you give importance? -56. 7% for price, 29. 4% for configuration, 12. 9% for brand 6. Do you think that supply of laptop is enough? -57. 1% think enough, 42. 3% think not enough 7. What can increase demand of laptops? -61. 4% cheaper rate, 15. 7% more wireless free zone, 22. 9% user developed Thank you!