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It swept through the tech world like a
title wave that AT&T stop selling
iphones online in New York city of that
cage just a week after a nationwide
blackberry outage so what's happening
are we putting too many of these
smartphones on dumb networks for this
week's tech Tuesday we check in with
frosted some of the chief analyst Jerry
pretty Jerry good to see you so first of
all what happened we know more about
what happened with AT&T in the iphone
thing
well we've had a situation growing David
three percent of the iphones consume
forty percent of the entire network and
it was destined that we were going to
finally put a chokehold on the capacity
and so it's it's a serious situation
last week blackberry had the same
problem
so what's the solution?
Well the networks
have plans to spend over $15 billion
to expand their networks i think
that we didn't expect that the
smartphone users the new blackberry the
new iphone users would consume so many
applications we're seeing over a billion
downloads of apps on the App Store and
people are saying gee I can do so many
things with this so they're consuming
more and more and it's it's it's a
challenge for these network providers
well and chariots it's not just the
iphone or or what is this is the sprint
that we got here going and it's not just
these phones it'sit's we just talked
about the tablets the itablet switch
might be another addition to the network
so we've got only gonna make it worse we
got a whole new group of products coming
online what happens then?
Well we've got a new demand system
coming in if Apple does this tablet it's
another billion-plus business for them
but it's also a new challenge going on
for the network because it's going to
consume media even more than a phone
would because if you hold it vertical
sure it's a book but then you turn
horizontal and it becomes a media player
movies music we're going to see a lot
more demands on these net networks and I
hope the networks will step up and give
us more capacity
well Jerry are you know Moore's law that says that you
know you double your capacity for your
computer capacity every 18 months or so
and and half the price it is the same
not true for the network's is that only
true for the devices and not for the
network's yeah it's much more true for
the devices because you can build more
and more into the little silicon wafers
what you having a network you have to
build big towers and base stations and
it takes billions of dollars in a lot of
time there working feverishly on it when
I talk to the network's it's nothing
more they want them to build their
capacity and let people use it more and
more but right now we're getting a
little bit ahead because these popular
smartphones are being consumed and
people love them and they're consuming a
lot of capacity so we're going to have
to just take a deep breath and wait a
while as much as we'd love to get these
products online?
Yeah yeah I think I think that God you
know maybe we are seeing the iphone go
on all the networks to quickly because
it might show called them as well but I
think we're going to see more smartphone
devices you're going to see them
pervasive and we're going to eventually
see the network's capacity increase and
offloading some of the network onto
Wi-Fi alternate networks that will help
bring this media and make these devices
fun and easy use in 2010.  I
think you hit upon you can't hold back
progress I mean these things are just
going to keep going on as long as smart
minds are thinking about it but the
crisis is going to force other networks
to appear that we don't know about now
Jerry birdie got to leave it at that
from frost & sullivan great to see again
Jerry thank you have a good new year.
Smartphones, mobile phones with more advanced
computing capabilities and connectivity than
regular mobile phones, came onto the consumer
market in the late 90s, but only gained mainstream
popularity with the introduction of Apple's
iPhone in 2007.
The iPhone revolutionized the industry by
offering customer friendly features such as
a touch screen interface and a virtual keyboard.
The first smartphone running on Android was
introduced to the consumer market in late
2008.
The smartphone industry has been steadily
developing and growing since then, both in
market size, as well as in models and suppliers.
By 2017, over a third of the world's population
is projected to own a smartphone, an estimated
total of almost 2.6 billion smartphone users
in the world.
Although Apple once had a commanding share
of the smartphone market, other companies
such as Samsung and Nokia introduced their
own smartphones and followed Apple in developing apps.
The competition among smartphone sellers is
an example of how the market responds to changes
in consumer tastes.
Competition increases consumers - choices
of available products and lowers the prices
consumers pay for those products.
A perfectly competitive market is a market
that meets the conditions of (1) many buyers
and sellers, (2) all firms selling identical
products, and (3) no barriers to new firms
entering the market.
The main factor in most consumer decisions
is the price of the product.
When we discuss demand, we are considering
not what a consumer wants to buy, but what
a consumer is willing and able to pay.
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A demand schedule is a table that shows the
relationship between the price of a product
and the quantity of the product demanded.
The amount of a good or service that a consumer
is willing and able to purchase at a given
price is called the quantity demanded.
Economists use a graph to plot the numbers
from a demand schedule as a demand curve,
which shows the relationship between the price
of a product
and the quantity of the product demanded.
Market demand curves show the product demand
by all the consumers of goods or services.
The demand schedule, the table, and the demand
curve both display the same information, only
one is tabular and the other graphical.
The ceteris paribus, or all else equal condition
is the requirement that when analyzing the
relationship between two variables, such as
price and quantity demanded, other variables
must be held constant.
If we allowed a variable other than price
to change that might affect the willingness
of consumers to buy a product, consumers would
change the quantity they demand at each price.
We can illustrate this result by shifting
the market demand curve.
The law of demand is the rule that, holding
everything else constant, when the price of
a product falls, the quantity demanded of
the product will increase, and when the price
of a product rises, the quantity demanded
of the product will decrease.
The law of demand holds for almost every market
demand curve.
It is not enforced by the economics police,
it is how open markets performs in response
to consumer choice.
Think of your own buying habits: you would
rent more movies if the price went down.
You would rent fewer movies if the price went
up.
You will hear often in this class about the
downward sloping demand curve.
It is as constant as wet water and talkative
economists.
The law of demand is explained by the substitution
and income effects of a change in price.
The substitution effect refers to the change
in the quantity demanded of a good resulting
from a change in price that makes the good
more or less expensive relative to other goods
that are substitutes.
This might be your willingness to purchase
a less expensive Android smartphone when the
cost of your favorite I-Phone increases.
To some extent, they are substitutes for each
other with price being the leveler between them.
The income effect is the change in the quantity
demanded of a good that results from the effect
of a change in the good's price on consumers'
purchasing power.
When the price of a good falls, the increased
purchasing power of consumers' incomes will
usually lead them to purchase a larger quantity
of the good.
The substitution and income effects happen
simultaneously whenever a price changes.
A change in demand refers to a shift in the
demand curve.
A shift will occur if there is a change in
one of the variables, other than the price
of the product that affects the willingness
of consumers to buy the product.
A change in quantity demanded refers to a
movement along the demand curve as a result
of a change in the product's price.
An advertising campaign can influence consumers'
demand for a product.
Economists would say that the advertising
campaign has affected consumers' tastes for
the product.
Taste is a catch-all category that refers
to many subjective elements that enter into
a consumer's decision to buy a product.
When consumers' taste for a product increases,
the demand curve will shift to the right,
and when consumers' taste for a product decreases,
the demand curve for the product will shift
to the left.
Other than price, the five most important
variables that affect demand are: income,
prices of related goods, tastes, population
and demographics, and expected future prices.
Changes to each factor causes consumer decisions
to change.
You might think of your decision to purchase
something like new jeans is influenced by
how you spend your money when you need to
first cover other obligations like rent, food,
and books for class.
Your decisions first pivot on your income
and then migrate to other factors like your
personal preferences of tastes and price.
The income that consumers have to spend affects
consumers' willingness and ability to buy
a good.
A normal good is a good for which the demand
increases as income rises and decreases as
income falls.
This includes most of us with things like
celebrating a new job by going out to dinner
as a group at a nice restaurant.
An inferior good is a good for which the demand
increases as income falls
and decreases as income rises.
These are things like shopping for winter
clothes at Goodwill or the Salvation Army.
Loads of people do this when economic times
are tight, but when that new job comes along
their demand for Salvation Army clothes decreases
in favor of the better known fashion outlets.
Run a quick confirmation, what type of good
are smartphones?
Hmmm.
Yup, they are Normal goods.
Substitutes are goods and services that can
be used for similar purposes.
When two goods are substitutes, the more you
buy of one, the less you will buy of the other.
It is seen as the fast foods you sometimes
consume, vehicles you drive, and even the
apartment you rent versus the dorm room you
live in.
An increase in the price of a substitute causes
the demand curve for the good of interest
to shift to the right.
It means that when the price of the Whopper
increases consumers demand more Big Macs.
A decrease in the price of a substitute causes
the demand curve for a good to shift to the left.
Complements are goods and services that are
used together.
When two goods are complements, the more you
buy of one, the more you will buy of the other.
A decrease in the price of a complement causes
the demand curve for a good to shift to the right.
An increase in the price of a complement causes
the demand curve for a good to shift to the left.
When E-readers first entered the US market,
they took on an aggressive growth pattern
peaking by about 2011, then sales went through
a steady decline.
This decline was initiated by the introduction
of Tablets that served much of the same services
as E-readers, and included so many more features.
Tablets became a substitute for E-readers.
As the demand for Tablets climbed, the demand
for E-readers fell.
Tablets became a substitute for E-readers.
An advertising campaign can influence consumers'
demand for a product.
Economists would say that the advertising
campaign
has affected consumers' taste for the product.
Taste is a catch-all category that refers
to many subjective elements that enter into
a consumer's decision to buy a product.
When consumers' taste for a product decreases,
the demand curve will shift to the left, and
when consumers' taste for a product increases,
the demand curve for the product will shift to the right.
Demographics refer to the characteristics
of a population
with respect to age, race, and gender.
As the demographics of a country or region
change, the demand for particular goods will
increase or decrease because different categories
of people tend to have different preferences
for those goods.
Expected future prices also affect current
demand.
For example, if enough consumers become convinced
that houses will be selling for lower prices
in three months, the demand for houses will
decrease now.
If enough consumers become convinced that
the price of houses will be higher in three
months, the demand for houses will increase
now as some consumers try to beat the expected
price increase.
In 2000, I returned part-time to the USA after
living in the Russian Federation.
With my family, we outfitted our new home
with appliances and fittings.
We found a new for me replacement to traditional
incandescent light bulbs: florescent bulbs.
Lighting effects were not the same, even though
energy use was lower.
We liked the lighting effects of the traditional
incandescent bulbs so we sought those supplies.
We found articles announcing that the US government
would soon issue a law preventing the manufacture
and sale of the traditional bulbs.
In a bit of overreaction, we purchased a lot
of the going-out-of-stock traditional bulbs.
We would have the lighting we wanted!
Soon, the halogen bulbs were replaced by LED
bulbs with a more familiar lighting effect.
Energy use was a lot lower with this new generation
bulbs.
But, traditional bulbs are still being sold
in stores.
There was no law created to stop traditional
incandescent light bulb manufacture and sale.
Those stories were fabricated to increase
demand for a current product type based on
preferences, price and quality.
You can imagine how producers may want to
limit news about new upgrades to their products
anticipating that consumers may reduce current
demand because of a better product coming
to market in the near-future.
This is a substitute product, management strategy.
It is consumers learning about a higher quality
product coming to market or near-term prices
falling because of new updates, the demand
for the current models will drop.
Apple takes the approach to just sell what
is on the shelf right now.
When the new phone hits the market, it becomes
the hot topic.
Now we take a close look at movements along
the demand curve or a shifting of the curve.
A change in quantity demanded refers to a
movement along the demand curve as a result
of a change in the product's price.
When looking at a change to one of the variables
on the graph,
it is called an endogenous variable change.
It moves along the demand curve.
A change in demand refers to a shift in the
demand curve.
A shift will occur if there is a change in
one of the variables, other than the price
of the product that affects the willingness
of consumers to buy the product.
Since the changed variable is from outside
the graph it is called an exogenous variable.
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The most important of the variables that influence
the willingness and ability of firms to sell
a good or service is price.
Quantity supplied is the amount of a good
or service that a firm is willing and able
to supply at a given price.
Holding other variables constant, when the
price of a good rises, producing the good
is more profitable and the quantity supplied
will increase.
When the price of a good falls, the good is
less profitable and the quantity supplied
will decrease.
Devoting more resources to the production
of a good results in increasing marginal costs.
With higher marginal costs, firms will supply
a larger quantity only if the price is higher.
A supply schedule is a table that shows the
relationship between the price of a product
and the quantity of the product supplied.
A supply curve is a curve that shows the relationship
between the price of a product and the quantity
of the product supplied.
This is the same approach we used to talk
about the Demand Schedule and Demand Curve.
In the case of the Supply Curve, it is upward
sloping to the right.
Always ask yourself, "who supplies goods and
services?"
It is the suppliers of the products and the
more money suppliers can make by selling their
products, the more they will produce.
For $100 each phone, suppliers may only make
8 million smartphones, but at $300 each, producers
would create 12 million per week.
This is the rational thinking supplier in
action.
The law of supply is the rule that, holding
everything else constant, increases in price
cause increases in the quantity supplied,
and decreases in price cause decreases in
the quantity supplied.
If only the price of a product changes, there
is a movement along the supply curve, which
is an increase or decrease in the quantity
supplied.
If any other variable that affects the willingness
of firms to supply a good changes then the
supply curve will shift; this results in an
increase or decrease in supply.
When firms increase the quantity of a product
they wish to sell at a given price, the supply
curve shifts to the right.
When firms decrease the quantity of a product
they wish to sell at a given price, the supply
curve shifts to the left.
The most important variables that shift market
supply are: prices of inputs, technological
change, prices of substitutes in production,
the number of firms in the market, and expected
future prices.
The factor most likely to cause a supply curve
to shift is a change in the price of an input.
If the price of an input rises, the supply
curve will shift to the left.
If the price of an input declines, the supply
curve will shift to the right.
This might be seen when the cost of phone
processor chips climbs quickly causing smartphone
manufacturers to increase the prices they
charge for new smartphones.
Conversely, a drop in plastic costs will decrease
the end products' cost.
Both situations caused shifts in the supply
curves.
Technological change is a positive or negative
change in the ability of a firm to produce
a given level of output with a given quantity
of inputs.
A positive technological change will shift
a firm's supply curve to the right;
a negative technological change will shift a firm's supply
curve to the left.
Alternative products that a firm could produce
are called substitutes in production.
If the price of a substitute in production
increases, the supply of the product will
shift to the left.
If a firm expects that the price of its product
will be higher in the future, the firm has
an incentive to decrease supply in the present
and increase supply in the future.
When firms enter a market, the supply curve
shifts to the right; when firms exit a market,
the supply curve shifts to the left.
Expected future prices can also affect demand.
For example, if enough consumers become convinced
that houses will be selling for a lower price
in three months, the demand for houses will
decrease now.
If enough consumers become convinced that
the price of houses will be higher in three
months, the demand for houses will increase
now as some consumers try to beat the expected
price increase.
Think about the products this really targets.
You may be able to store a warehouse of smartphones,
but could you do this with crates of tomatoes?
You get the idea, they need to be non-perishable
goods.
Some timing issues pivot on geopolitical situations.
Warner Brothers delayed the release of Collateral
Damage with Arnold Schwarzenegger because
of the terrorist attacks in the USA on 9/11.
Warner Brothers correctly anticipated that
viewership of this type of movie would be
greater after a decent lapse in time when
people saw the crashing visions of the world
trade center and burning pentagon building.
A change in quantity supplied refers to a movement along the supply curve.
as a result of the change of the product's price.
Along the curve movement means we have an endogenous variable change.
A change in supply refers to a shift in the supply curve.
The supply curve will shift when there is
a change in one of the variables, other than
the price of the product, that affects the
willingness of suppliers to sell the product.
This is another example of an exogenous variable.
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The purpose of markets is to bring buyers
and sellers together.
The interaction of buyers and sellers in markets
results in firms producing goods and services
most desired by consumers.
Market equilibrium is a situation in which
quantity demanded equals quantity supplied.
A competitive market equilibrium is a market
equilibrium with many buyers and many sellers.
We spend a lot of time looking at graphs of
these curves.
Their intersection is the sweet-spot called
"equilibrium".
This intersection shows where price and quantity
are found when the markets are stable.
Equilibrium shows what quantities are expected
at the indicated price.
A surplus is a situation in which the quantity
supplied is greater than the quantity demanded.
When there is a surplus, firms have unsold
goods piling up, which gives them an incentive
to increase their sales by cutting the price.
Cutting the price simultaneously increases
the quantity demanded
and decreases the quantity supplied.
Equilibrium will eventually be achieved.
A 
shortage is a situation in which the quantity
demanded is greater than the quantity supplied.
When a shortage occurs, some consumers will
be unable to obtain the product, and firms
will realize they can raise the price without
losing sales.
A higher price will simultaneously increase
the quantity supplied and decrease the quantity
demanded.
At a competitive market equilibrium, all consumers
willing to pay the market price will be able
to buy as much as they want, and all firms
willing to accept the market price will be
able to sell as much of the product as they
want.
There will be no reason for the price to change
unless either the demand curve or the supply
curve shifts.
A shortage is not scarcity.
Remember, Buzz Lightyear doll shortage in
1995 was because shortsighted retailers did
not order enough dolls to meet demand.
That defined the shortage situation.
In the USA, we live in a Free Enterprise Economy
where we have freedom of choice to buy what
we want and how much we want, based on our
ability to purchase the scarce resources available.
Similarly, businesses can produce the products
they are best suited to provide and at the
cost guaranteed through competition.
Neither consumers nor firms can dictate what
the equilibrium price will be.
No firm can sell anything at any price unless
it can find a willing buyer, and no consumer
can buy anything at any price without finding
a willing seller.
In a market situation called Perfect Competition,
there are many buyers and many sellers.
All market participants exercise free will,
but none are Price Setters.
Perfect Competition includes markets for goods
such as carrots, corn, and potatoes sold in
the local markets.
If a seller increases price too high, buyers
will go to the next store to buy them at the
market price.
By the same consideration, buyers cannot step
into Walmart and negotiate a lower price for
a bag of russets.
All participants are price takers in Perfect
Competition.
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As we explore these tables and figures, focus
on how they are formed and react to changes.
Develop reasoning considerations to confirm
that buyers "Demand" goods
and sellers "Supply" goods.
Always keep them straight in your mind and
remember the "downward sloping to the right
Demand", and the "Upward Sloping to the right
Supply".
Trust me on this one, remembering this will
serve you well.
When the market supply curve shifts to the
right, there will be a surplus at the original
equilibrium price.
The surplus is eliminated as the price falls
to the new equilibrium and the quantity rises
to a new equilibrium.
If existing firms exit the market, the supply
curve will shift to the left, causing the
equilibrium price to rise and the equilibrium
quantity to fall.
Really, at this stage of our considerations,
we can only predict directions of the shifts
in price and quantity, not specific dollar
amounts.
At least, not yet.
Consider the effects of an exogenous variable,
like consumer incomes - it is not shown on
the graph so income increases will shift the
demand curve to the right.
We call smartphones a Normal good because
as incomes go up,
consumer demand also goes up.
A new intersection with the supply curve is
identified where a higher price is predicted
and a higher quantity is demanded at the new
price.
A series of Demand curve scenario are presented
on the left side column with Supply curve
changes along the column headings.
If Demand is held constant while the supply
curve shifts to the right, we can predict
what we saw two figures earlier, that quantity
will increase and price will fall.
Conversely, we can consider a supply curve
shifting to the left and the result being
as we just most recently saw on the last graph
that quantity will decrease
and price will increase.
Right here, I ask you to recreate this table
on paper in front of you.
For you to really get these ideas, you need
to stop the video and fill the four predicted
outcomes you would expect to see.
Draw the graphs, label price on the vertical
axis and quantity on the horizontal.
Create your supply and demand lines, pencil
in the shifts indicated in each instance.
Really, you need to be able to complete this
table without me showing you the answers to
each scenario.
You want to use the next 30 seconds to fill
the table and stop the video if you need some
more time.
This is the time you really want to spend
for yourself.
Do it, make it happen.
[You know the Jeopardy theme music... right?]
OK, so now we get to check a couple of these scenario.
Consider the market for smartphones in general,
as the market has grown so have the number
of firms making these gadgets of high demand.
The Supply curve shifts to the right.
At the same time, an economic expansion has
been in effect and incomes have risen.
Because smartphones are a normal good the
demand for smartphones also shifted to the right.
We get a new equilibrium set at the new intersection
of both shifted lines.
There is a bit of ambiguity resulting from
this graph, because I have shown demand shifting
more than supply shifted.
This scenario shows both equilibrium price
and equilibrium quantity increasing.
What if incomes rose only slightly and the
number of suppliers went up drastically more?
It could result in price dropping and quantity
increasing.
Consider that even if incomes did not increase,
but the number of suppliers did increase how
price would still be predicted to drop and
quantity also increase.
I hope you can see this table completed now
in comparison to what you created a few minutes ago.
See if your answers are consistent with these.
Really, you need to nail these responses knowing
that some of them give firm increase or decrease
responses, while others will be a range of
options based on the magnitude of the shift.
Blu-ray players entered the US market in about
2006.
It crushed the market previously dominated
by VHS players
and then more recently DVD players.
Blu-ray was the new technology with higher
video quality and audio performance.
It entered the market during the expansion
of the USA economy at about $800 per unit.
Over the course of seven years, price fell
to about $95 per unit.
Why did this price drop happen?
Price drops were a response to a dramatic
increase in suppliers of the units.
How would you show this on a graph?
This one is a drastic supply curve shift to
the right.
It happened not only because of an increase
in suppliers but also a drop the price of
electronic components used in manufacture.
Rarely are curve shifts this pronounced, but
drawing them out helps to convey what happens
in the markets.
If both the demand and supply curves increase,
whether the equilibrium price in a market
rises or falls over time depends on whether
demand shifts
to the right more than supply does.
When demand shifts more than supply, the equilibrium
price rises.
When supply shifts to the right more than
demand, the equilibrium price falls.
When a shift in the supply curve causes a
change in equilibrium price, the change in
price does not cause a further change in demand.
This is an important consideration of these
facts.
There is a difference between an increase
in suppliers of the market versus a change
of demand.
If the change in demand happens because prices
went down, then there is a movement along
the demand curve to the point of new intersection
with the shifted supply curve.
The demand curve displays what quantity consumers
will demand at all price points.
Find the new equilibrium point and your solution
will be there waiting for your discovery.
When describing changes to supply and demand
curves be very specific about curves shifting
to the right and shifting to the left.
They do not shift up and down: those terms
will confuse you and muddle your best understanding.
You might see a movement up or down a demand
curve but that is a movement along the curve,
not a shift of it.
If you keep your focus on these terms and
apply them accurately each time, you will
not confuse yourself.
That is a monumental accomplishment all by
itself!
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