3. The price elasticity of demand for Apple iPhone smart-phones is likely to increase when:
a. the government grants all workers a generous income tax cut
b. production is shifted to a country where average wages are lower
c. a new competitor enters the mobile phone market
d. more applications are made available to consumers of mobile phone technology
To determine which option would increase the price elasticity of demand for Apple iPhone smartphones, we should first understand what price elasticity of demand means. Price elasticity of demand measures how sensitive the quantity demanded of a product is to a change in its price. If the demand is highly responsive to price changes, it is said to be elastic. If the demand is not very responsive, it is said to be inelastic.
Now, let's analyze the given options:
a. When the government grants all workers a generous income tax cut, it generally leads to an increase in people's disposable income. However, this change is unlikely to significantly affect the price sensitivity of demand for Apple iPhone smartphones. So, this option is less likely to increase the price elasticity of demand.
b. Shifting production to a country where average wages are lower can lead to a decrease in production costs, which may result in lower prices for Apple iPhone smartphones. Lower prices usually make demand more price-sensitive, thus increasing price elasticity. Therefore, this option is likely to increase the price elasticity of demand.
c. When a new competitor enters the mobile phone market, it typically leads to increased competition. Increased competition can result in lower prices, increased product variety, and more choices for consumers. All these factors make the demand more price-sensitive, increasing price elasticity. Therefore, this option is likely to increase the price elasticity of demand.
d. Making more applications available to consumers of mobile phone technology can enhance the value of the iPhone. It may lead to increased demand and consumer loyalty but does not necessarily make the demand more price-sensitive. Therefore, this option is less likely to increase the price elasticity of demand.
Based on the analysis above, options b and c are likely to increase the price elasticity of demand for Apple iPhone smartphones.
The price elasticity of demand measures how responsive the quantity demanded of a product is to a change in price. An increase in price elasticity of demand means that consumers are more sensitive to price changes.
In the case of Apple iPhone smartphones, the price elasticity of demand is likely to increase when:
a. the government grants all workers a generous income tax cut: This might not directly impact the price of iPhones. However, if workers have more disposable income due to lower tax burden, they may be more willing to buy iPhones even at higher prices, leading to a less elastic demand.
b. production is shifted to a country where average wages are lower: Shifting production to a country with lower wages may result in cost savings. If these cost savings are passed on to consumers in the form of lower iPhone prices, the price elasticity of demand may increase as consumers become more price-sensitive.
c. a new competitor enters the mobile phone market: The entry of a new competitor can lead to increased competition and more options for consumers. This can make consumers more price-sensitive and increase the price elasticity of demand for iPhones.
d. more applications are made available to consumers of mobile phone technology: If more applications are made available to consumers, it could enhance the value proposition of iPhones. This may decrease the price elasticity of demand as consumers may be willing to pay a higher price for iPhones due to the increased utility provided by the additional applications.
Based on these factors, both the entry of a new competitor (option c) and more applications being made available (option d) are likely to increase the price elasticity of demand for Apple iPhone smartphones.