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Income Elasticity of Demand for Dell

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Published: Mon, 20 Nov 2017

  • Ginel Acedieu

Dell Inc.

I love computer, and I especially like Lenovo and Dell computers; this is the reason why I decided to do my economic supply and demand analysis paper on Dell Inc.

Michael started the Dell Company when he turned 19 years old in his door room at the University of Texas with a vision for person computing, and that customers could buys customized computers direct from their home. So, he decided to invest one thousand dollars to start the company. The dell direct company model eliminates retailers that would add pointless cost and the time, and one of their goals is to provide low prices on many different customized personal computer systems. Dell is one of the largest technological corporations in the world, employing more than 103,300 people worldwide. This is the reason why Dell is listed as number 41 in the Fortune 500 list. The headquarters is located in Austin, Texas. In 2010 the company employed about 16,000 people in the facility, which has 2,100,000 square feet of space. Dell advertisements have appeared in several types of media including television, the Internet, magazines, catalogs and newspapers. A few of Dell Inc.’s marketing strategies include lowering prices at all times of the year, by offering free products as bonus, such as Dell printers, and offering free shipping in order to encourage more sales and to stave off competitors.

The computers (desktops and laptops) market can be described into two characteristics. One characteristic is that the computer products that sellers are selling are similar, and second the number of sellers and buyers are so vast that none of them has a significant impact on the market price. By considering those aspects of the computer market, I can determined that the computer market is a competitive market. Each brands are selling computers with same configuration, and consumers have so many choices. In addition, the wide range of choices makes it impossible for someone to be a price maker in this market.

According to the book, Essentials of Economics, the demand curve shifts in two ways. If any of the factors increases the quantity demanded, (increase in demand) the demand curve shifts to the right. And if any of the factors decreases the quantity demanded (decrease in demand), the demand curve shifts to the left. For example, when the price of Dell computers (goods) fall from $500 to $350, the quantity demanded rises from 1000 to 3000 and cause the demand curve to shift to the right. An increase in income lead to an increase in demand, so that when the income of people in my town increase, they will buy more computers including desktops and laptops. When a price of substitute goods such as HP, Acer, etc. rises, then the demand for Dell computers rises because people tend to shift to the brands with the lowest price. Most consumers (people) that I know in New Jersey love Dell brand computers, they prefer Dell computers over many other brands that are available in the area because Dell computers are not only more affordable, but they tend to last longer. The reason why Dell computers increase in demand is because Dell provides various offers that attract consumers, for instance, discount, free shipping, free printers etc..

Like the demand curse, the supply curve shifts in two ways. If any of the factors increases the quantity supplied (increase in supply); the supply curve shifts to the right and vice versa. For instance, when the price of Dell computers (good) fall from $400 to 300, the quantity supplied falls from 3000 to 1000. However, the more sellers in the market, the larger the supply. The number of computer buyers is increasing from day to day, and that is an incentive for the suppliers to come in the market as there is so much opportunity for them. The production of computers is more profitable when the components of computers go up, and as a result supply of computers increases. When computer productions process are more efficient and effective, producers yield more profit in return because more consumers will buy them.

Market price always tend to move towards the point where the demand curve and the supply curve intersects (equilibrium point), and 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. Let look at the Dell Inspiron 15 (I15RV-6190 BLK) for the chart below. The chart reveals at $300, the number of computers Dell wishes to sell at 30,000, and it is identical to the number that consumers want to buy at 30,000. At $300 and 30,000 Dell Laptops, there is neither a shortage nor a surplus. So, the 30,000 is the equilibrium quantity. Let’s plot and draw the graph to understand this equilibrium.

Market Supply and Demand for Dell Laptops

     

(1)

(2)

(3)

(4)

     

Total Quantity Supplied per month

Price per Dell Computer

Total Quantity Demanded per Month

Surplus (+) or Shortage (-)*

     

60,000

600

15000

(+)45,000

     

45,000

500

20,000

(+)25,000

     

30000

300

30000

0

     

20,000

200

40,000

(-)20,000

     

10,000

100

45,000

(-)35,000

     
             

 
 

       
 

         

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, and 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 computers of same configuration at a cheaper price. Dell computers are attractive, shiny and have sleek metallic body. Also people prefer them because of their comfortable weight and they are easy to carry. We can classify Dell computers as luxury goods. The demand for Dell computers is inelastic over a larger time period. Because if the price of Dell computers 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.

Income elasticity of demand and cross price elasticity of demand Dell computers are normal goods. The quantity demanded when income raises. Since Quantity demanded and income move in the same direction, Dell computers have positive income elasticity. Again, since Dell computers are luxury goods, they 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.

The supply of Dell laptops is almost inelastic, for example, 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. 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 competitors.

Dell has continue to be innovative in their tactic to build computers, desktop and laptops. They have been proven throughout the years of existence that providing different type of customizable computers with excellent customer service at reasonable prices is possible. This happened during the early years when Dell was able to challenge the competition by substantial margins. They were swiftly able to capture some of the market share once held by super-giant IBM Once they established new strategic plans to sell computers internationally. As a result, in 2007 International sales was accounted for over forty one percent of Dell’s sales. Dell computers serving customers is the core of the leadership and management styles. Dell computers leaders play roles and responsibilities to maintain a healthy organizational culture, they are responsible for establishing systems, which continue to make Dell computers a successful organization. For that reason, Dell has continued introducing different product by investing in critical developments in home, small business and enterprise computing.

Work cited

Brue, S., & McConnell, C. (2014). Demand, Supply, and Market Equilibrium. In Essentials of economics (Third ed., pp. 56-60). New York: McGraw-Hill Irwin.

Michael Dell. (2014). The Biography.com website. Retrieved 03:15, Sep 19, 2014, from http://www.biography.com/people/michael-dell-9542199.

Dell. (2014). Wikipedia.org website. Retrieved September 17, 2014, from http://en.wikipedia.org/wiki/Dell.

Sou, M. (2014, January 1). Strategic Management, case analysis DELL. Retrieved September 17, 2014, from http://www.academia.edu/3687086/Strategic_Management_case_analysis_DELL.


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