Question

Consider a competitor’s response to a product which has recently come under scrutiny. An example would be the 2016 reaction of supply and demand of Apple’s iPhone after the Samsung Galaxy Note 7 exploding battery issue (Links to an external site.).

How did these problems influence how Apple handled their market? Consider:

• Their labor and potential output and how this influenced GDP.
• Their long and short-run aggregate supply curve
• How people viewed their iPhone purchase within their definition of disposable domestic income
• How the iPhone price level influenced GDP
• The increase or decrease in consumer optimism, and how does this affected the aggregate demand curve

Answer 1

Apple is a highly known smartphone brand produces premium quality smartphones.on its competitor in this premium segment is samsung.so both are rivals and both are produces close substitute products.so one's price or quality can influnce the demand for other product.and also people those want to buy premium smartphones either choose between apple or samsung.but when some technical flaw happens to samsung galaxy note7 then it has a great impact also on apple.the samsung galaxy note7 exploded and samsung have to take back all those devices and stop supply of this particular smartphone.so now individual who are wanting to buy a premium smartphone has only option to buy apple.so the demand for apple smartphone increases at that particular time.also it has a long term impact on both the companies like all brands doing business upon their fanbase and trust.but after the incident with galaxy note7 there are trust issue among the buyer before purchasing any samsung smartphone.and in this times the brand value of apple increasing.the market situation we can explain with a help of diagramin this figure the we measure price on vertical axis and quantity on horizontal axis.the initial sitiation before note7 blast the price for apple smartphone is P1 and long run equilibrium quantity is Q1 where both supply and demand intersect.but when note7 exploded individual prefers apple upon samsung.so in short run demand for apple apple becomes D2D2 but in short run supply not changed.but in this situation apple had to increase production by employing new workers.so supply curve shifts from SS to S1S1.now short run price is P3 which is higher and quantity also Q3.so apple makes huge profit which increase company GDp.but in the long run the apple reduces its excess supply so that the supply curve came back to the initial supply curve.where the long run equilibrium achived.and price level is P2 which is more higher and aplle will say this is for the safety and quality products.and the equilibrium quantity is Q2 which is more than befor which is Q1.

So the GDP of apple increases for the long period of time as he earns more reputation after note7 blast and they will sell their phone more expensive now.