I’ve got to admit something to you… I love iPhones!
The aesthetics and operating system are what really grab my attention. But that’s just me. You could be an Android person (which is totally fine).
Regardless of which smartphone person you are, we can all agree that iPhones are expensive. Am I right?
Heck, almost every major Apple product is expensive. They’re not the type of electronics you get if you’re on the down low cash wise. If you’ve got the money to invest in an Apple product that’s one thing, but the cold hard truth is that Apple products aren’t cheap.
Every wondered why?
Maybe you have. You probably think that Apple limits their supply of iPhones on purpose to drive up sales. That’s right, but only partly.
The key that unlocks it all is supply and demand. The age old law of economics. A law that many Americans (especially our politicians) today have forgotten.
Starting Us Off: the Four Main Laws of Supply and Demand
To get a cursory understanding of Supply and Demand, you have to know the four basic rules that govern it.
- If the demand of a certain product increases and the supply of that product remains the same, then a shortage occurs, which leads to a higher price.
- If the demand of a certain product decreases and the supply of that product remains the same, then a surplus occurs, which leads to lower prices.
- If the demand of a certain product remains unchanged, and the supply of that product increases, then a surplus occurs, leading to lower prices.
- If demand of a certain product remains the same, and the supply of that product decreases, then a shortage occurs, leading to a higher price.
I’m going to define these laws several different ways just to make sure you get them all down in your head. I wouldn’t want you walking out of here still confused about the Law of Supply and Demand (it’s pretty easy to get confused, trust me).
Here’s a little mathematical way of looking at it:
High demand + current supply = less products and higher prices
Low demand + current supply = more products and lower prices
Current demand + high supply = more products and lower prices
Current demand + low supply = less products and higher prices
These four rules can be used to explain everything from high gas prices, to job wages, all the way to why iPhones are so expensive.
Supply and Demand in the Job Market
Take for instance the job wages I mentioned. If you’ve ever been perplexed why a stock room job pays less than a job that has zero physical labor, Supply and Demand can help.
Supply, instead of representing the amount of products available for you to purchase, represents the number of available people who can work that specific position.
Demand, instead of representing how much you (and other consumers like you) value a specific product, represents how badly an employer needs that job.
Physical labor jobs, like cart attendants, cashiers, and burger flippers are low skill positions. That means, very few requirements exist for the position. As long as you’re physically able to walk and think you should be fine.
That low skill level means the potential supply for that job is large. Which ultimately means that employers don’t put a lot of value (money wise) into the position, because it can be filled easily, and requires little to no education or previous training.
However, once you start climbing up the ladder of available positions inside a company, things change. Managers, company lawyers, and yes, even CEO’s require higher levels of skill, education, and experience to fill.
You can see this change by comparing the medical profession with the road construction industry. For the most part, doctors receive higher wages than the guy you passed on the side of the road digging ditches. The amount of perspiration doesn’t define your pay. What defines your pay is a combination of A) how much the employer values the job, B) the level of skill required, C) how many people are available to do the job, and D) how high the demand of the job is.
iPhones, and Supply and Demand
I mentioned earlier that supply and demand plays a big part in the price of iPhones. Hopefully, you’ve already caught a glimpse of why that’s the case, but let me go over it quickly.
First off, the construction cost of iPhones plays a lot into the supply. The higher the cost, the smaller the available supply. iPhones aren’t cheap (duh!) to construct. Apple has to price their phones high enough to cover the manufacturing cost and provide a profit.
For kicks, a profit is the sales revenue minus the manufacturing cost. Or, the sales price that you pay in Target minus the price the company pays to have that product manufactured.
Secondly, iPhones are insanely popular. Couple that with a low supply and you’ve got an extremely high demand. Remember rules 1 and 2 of Supply and Demand? Well, combine those two and you’ve got a situation where demand increases, supply decreases, and you end up with a high price.
So iPhones are expensive because of A) the manufacturing cost, B) a low supply, and C) a high demand.
Hopefully, you’ve come out of this with a greater understanding of what supply and demand actually is. Noticed I didn’t use any graphs? That’s because they tend to be more confusing than helpful when communicating the topic.
When I took an economics class in my senior year in high-school I was so confused. Not only did the textbook do a pathetic job at describing Austrian economics in a clear and succinct way, but it also muddied the supply and demand water.
Everyone was jumbled up on what supply and demand actually meant. And it was all because the author used complicated graphs. Even my friend and I, who are into economics, were scratching our heads. It was horrible.
That said, supply and demand is a simple concept to grasp.
I hope I’ve accomplished that.