Instructions to Students
Answer all 10 questions below.
The report should be 2,500 words in length. Marks are allocated for each
question and sub-question as indicated below. Harvard referencing should be
utilised with marks deducted if it is not used. Diagrams should not be copied
and pasted, but drawn and labelled using the Word drawing facilities. Word
equation editor is to be used where appropriate.

Part A – Microeconomics
Apple’s iPhone 11 Has a New Feature: A Lower Price
By Jack Nicas and Brian X. Chen, September 10, 2019
The iPhone 11, Apple’s entry-level phone, will start at $700, compared with
$750 for the comparable model last year.
Tim Cook speaking about the iPhone 11 Pro. CreditCreditJim Wilson/The New
York Times
Here are the highlights:
 Rebranding its priciest iPhones as “Pro” models.
 Apple introduces a trio of new iPhones.
 Here’s a new version of the Apple Watch.
 Apple introduces a new iPad.
 The streaming service starts Nov. 1.
 The gaming service, Apple Arcade, will be $5 a month.
CUPERTINO, Calif. — Apple’s product launches have long been full of surprises,
but rarely has a price cut been among them.
On Tuesday, in a sign that Apple is paying attention to consumers who aren’t
racing to buy more expensive phones, the company said the iPhone 11, its entrylevel phone, would start at $700, compared with $750 for the comparable model
last year.
Apple kept the starting prices of its more advanced models, the iPhone 11 Pro
and iPhone 11 Pro Max, at $1,000 and $1,100. The company unveiled the new
phones at a 90-minute press event at its Silicon Valley campus.
The cost cut on the iPhone 11 was unexpected because Apple had been raising
prices each year as a way to keep revenues afloat while iPhone sales fell. But
Apple might have hit the ceiling this past year. Sales of the two models that
began at $1,000 or more lagged expectations, causing the company to cut
revenue estimates and eventually slash prices in China to increase demand.
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At the same time, Apple’s entry-level phone last year — the iPhone XR, at $750
— became the company’s best-selling device.
Analysts say that one issue with the rising prices has been that new iPhone
features haven’t kept up. As a result, many people are holding onto their phones
longer. The falling price suggests Apple sees that trend and is trying to entice
more people to upgrade.
Apple said it would also still sell older models for even less. The iPhone 8 now
costs $450 and the iPhone XR now costs $600.
Rebranding its priciest iPhones as “Pro” models.
Apple has rebranded its iPhone line to make the iPhone 11 its entry-level option,
while adding a “Pro” label to its more expensive models.
The move is a departure from Apple’s previous marketing strategy, which gave
the cheapest phone a different label that branded it as the discounted model. (It
still started at $750.) The iPhone XR became Apple’s best-selling iPhone, while its
more expensive models struggled in some markets. Those lagging sales caused
Apple to cut revenue estimates earlier this year.
The iPhone XR also likely outperformed its costlier cousins in part because tech
reviewers considered it to be about as good as the flagship iPhone — for 25
percent less. Apple has long been in a bind on pricing and developing its line of
iPhones, aiming to make the least expensive devices still worth paying hundreds
of dollars for without undercutting the pricier models.
The rebranding suggests Apple is embracing the lowest-priced iPhone as the
device most people will use, while marketing the “Pro” devices for the higher end
of the market. The company has done the same with its iPads, also labeling its
most advanced tablets the iPad Pro.
Apple introduces a trio of new iPhones.
The company introduced three new phones: the iPhone 11, iPhone 11 Pro and
the iPhone 11 Pro Max. The main difference? Each of the three iPhones gained a
new camera lens.
The new high-end Pro models include a triple-lens main camera, up from two
lenses in last year’s models, and the entry-level iPhone now has a dual-lens
camera, up from a single lens in last year’s iPhone XR. All the iPhones include a
so-called ultrawide angle lens.
Here’s what that means: The new ultrawide lens take photos with a wider field of
view than traditional phone cameras, which makes it handy for shooting
landscapes or large group gatherings. Samsung’s Galaxy S10, which was
released this year, also includes an ultrawide angle lens.
The second lens on the entry-level iPhone will also make the camera more
capable of shooting photos in portrait mode, which puts the picture’s main
subject in sharp focus while softly blurring the background.
Last year’s iPhone XR had a single lens and was capable of shooting portrait
photos of only human subjects. The second lens in the new entry-level iPhone
will let you take portrait shots of nonhuman subjects like food, animals and
plants.
On the high-end iPhones, the triple-lens system lets users zoom in closer on their
subjects. Apple also said it had added a night mode for shooting photos in low
light. By default, when users shoot photos in the dark, the camera will
automatically make photos look better lit.
With its focus on camera tech, Apple is playing catch-up with Google. Google’s
Pixel smartphones focus on camera innovations including Night Sight, a popular
feature for shooting photos in low light, which led critics to conclude that the
search giant had used its prowess in artificial intelligence to surpass Apple in
camera tech.
Here’s a new version of the Apple Watch.
Stan Ng, Apple’s vice president for product marketing, Apple Watch.CreditJim
Wilson/The New York Times
Apple detailed the Apple Watch Series 5. The watch’s most noteworthy new
feature is its so-called always-on display. In previous models, the screen would
turn on when you tilted your wrist to check the time.
The new watch uses a display technology (previously seen in Samsung phones)
to keep some pixels activated just to show the time, consuming little power. The
screen becomes fully illuminated when you tilt your wrist. Other updates to the
watch, including a built-in compass, were minor. The watch starts at $400, the
same price as the last model. It will be available on Sept. 20.
Apple introduces a new iPad.
The company introduced a new version of its entry-level iPad, which costs $330.
The new model includes a 10.2-inch screen, up from 9.7 inches. Unlike the
previous model, the new tablet is compatible with Apple’s Smart Keyboard.
(Previous iPads worked only with third-party keyboards.)
The updated iPad is unremarkable compared with Apple’s high-end iPad Pros,
which include sharper screens and infrared face recognition and work with a
more advanced Apple stylus. However, the entry-level iPad is Apple’s best-selling
tablet, and its investment in the entry-level model shows the company’s
commitment to the category even though its sales have slowed down.
The streaming service starts Nov. 1.
Tim Cook speaking about “The Morning Show.”CreditJim Wilson/The New York
Times
At last, Apple’s original television shows have a premiere date and price point.
The company’s chief executive, Tim Cook, announced that Apple would begin
rolling out original shows and movies on Nov. 1 for $5 per month.
Apple TV Plus, which will be the home of all of Apple’s original content, will be
free for a year to users who buy a company product like a new iPhone or a
laptop.
Apple announced that on Nov. 1, it would feature a lineup of adult dramas,
comedies, children’s programs and documentaries. Those series include four
shows the company has released trailers for, including “The Morning Show,”
starring Jennifer Aniston, Reese Witherspoon and Steve Carrell; “Dickinson,” a
comedy starring Hailee Steinfeld and Jane Krakowski; “See,” an epic drama
starring Jason Momoa; and “For All Mankind,” a space drama. The launch will also
feature other programs, including Oprah Winfrey’s new book club, a Peanuts
series called “Snoopy in Space” and a documentary that Apple bought the rights
to last year called “The Elephant Queen.”
By year’s end, Apple will have six subscription services, from news to TV to
music. Customers who wanted all of them would pay up to $55 a month.
The launch date puts Apple in the thick of the so-called streaming wars, which
have consumed Hollywood. Disney is rolling out its new streaming service,
Disney Plus, on Nov. 12. AT&T’s Warner Media, the home of HBO, Warner Bros.
and the DC comic universe, will introduce its own streaming service next year,
and will announce new details for it on Oct. 29.
The monthly price makes it cheaper than Disney’s service, which will be $7 a
month, and is well below Netflix, which is $13 per month.
But questions linger: How will Apple market these programs in the coming
months? Which shows will be introduced from the get-go? And will Apple drop all
episodes of new series at once like Netflix does, or will it roll them out once a
week?
— John Koblin
The gaming service, Apple Arcade, will be $5 a month.
Ann Thai, product lead for Apple, onstage at the Steve Jobs Theater at Apple Park
in Cupertino, Calif.CreditJim Wilson/The New York Times
Apple announced it was getting into gaming earlier this year. Now we know how
much its subscription will cost: $5 a month.
The company said its gaming service, Apple Arcade, would be available starting
Sept. 19 in more than 150 countries. The service will give users access to more
than 100 games that aren’t available elsewhere. The games can be played on
iPhones, iPads, Macs and on Apple TV.
Apple showed off several of the games on Tuesday, including an underseaexploration game from the Japanese game maker Capcom and an updated
version of the arcade classic Frogger.
Apple Arcade is part of a larger strategy by the company to create a steady,
more predictable revenue stream from services as sales of iPhones continue to
slide. Apple has also added subscription services for news, music and streaming
video.
Apple spent hundreds of millions of dollars to fund the development of new
games for Apple Arcade, The Financial Times reported in April. Analysts expect
gaming could become a major moneymaker for Apple within the next several
years. HSBC analysts forecast its revenues to reach $2.7 billion by 2022,
outpacing the company’s news and video subscription services.

End of article
Questions:
1) Why is an understanding of the price elasticity of demand important
for a firm like Apple when launching a new product?
5 marks
2) What do you think are the main determinants of the price elasticity
of demand for the Apple iPhone?
5 marks
3) According to the article, Apple launched the iPhone 11 at a price of
$700. Assume sales in the first year following launch generated 10
million units in sales. In the second year, Apple reduces the price to
$525 and sales that year total 14 million units. Calculate the price
elasticity of demand for the iPhone 11 based on these figures. Did
Apple benefit in terms of revenue from reducing prices? Explain.
6 marks
4) Given the low barriers to entry and exit in the games industry, can
Apple Arcade gain a competitive advantage over their rivals? Explain
with the use of a perfectly competitive market model.
7 marks
5) To what extent does Apple’s rebranding strategy support its brand
position against competitors?
7 marks

Part B – Microeconomics
Mobile Roaming Charges
Prior to June 2017, many mobile phone users across Europe faced different prices
for accessing the same services when travelling to another country in Europe.
For example, a UK phone user may have had a tariff which included unlimited
texts and minutes and an allowance on the amount of data used in the UK but
when travelling to Spain, would have faced additional charges on data roaming.
In some cases, users who were unaware of data roaming charges faced
significant bills when returning home for having sent texts, images, downloading
data and making calls home. For the service providers, this option allowed them
to be able to increase revenues, albeit that many customers clearly did not like
the idea.
European Union regulators also didn’t like the idea. It was argued that mobile
data roaming charges were an example of market failure, and plans had been
put in place to have them abolished. These plans came to fruition in June 2017. A
joint press statement from the European Union and the European Commission
noted that ‘The end of roaming charges is a true European success story… Over
the last 10 years, our institutions have been working hard together to fix the
market failure. Each time a European citizen crossed an EU border, be it for
holidays, work, studies or just for a day, they had to worry about using mobile
phones and a high phone bill from the roaming charges when they came home.
Roaming charges will now be a thing of the past. As of tomorrow, [15 June] you
will be able to remain connected while travelling in the EU, for the same price as
at home.”
End of article
Source: Europa.eu/rapid/press-release_STATEMENT-17-1590_en.htm
Questions
6) Describe using appropriate supply and demand diagrams, how the
existence of data roaming charges affected both consumer and producer
surplus in the mobile phone market.
5 marks
7) Why do you think the European Union believed that data roaming
charges was an example of market failure?
5 marks
8) Could the European Union have used a tax or subsidy to correct the
market failure in this particular case? Justify your argument.
5 marks
9) Should mobile phone services providers have exercised social and ethical
responsibility with regards to data roaming charges and not even have
introduced them in the first place? Justify your argument.
5 marks
Part C – Macroeconomics
10) Download annual UK data on consumption (real personal
consumption) and real GDP (real Gross Domestic product) from 1995 until
2018 from FRED and include both in the same graph. Overlay recession
bars and copy the graph into your Word document.
a) Describe the trends in the graph over time and comment on the
recession periods.
10 marks
b) Use the model of aggregate demand and aggregate supply to help
illustrate why inflation might be expected to accelerate when
economic growth is rising.
8 marks
c) How might changes in aggregate supply contribute to keeping
inflation subdued even if aggregate demand is rising?
5 marks
d) To what extent do you think the model of aggregate demand and
aggregate supply can accurately explain what is happening to key
economic indicators since the UK referendum results of 23rd June
2016 – commonly referred to as Brexit?
7 marks
The following are key factors that are taken into account in the
assessment of a report:
1. Evidence for extensive and in-depth reading of relevant literature (journal
articles, textbooks, and other relevant sources)
2.Understanding of the subject, as demonstrated by the ability to clearly explain
the issues involved and an awareness of alternative views on the topic.
3.Thorough grasp of theories and/or theoretical models (where appropriate)
relevant to the topic, the use of relevant concepts and (where appropriate) the
use of diagrammatic analysis and/or equations.
4.Good use of comprehensive, relevant, accurate and up-to-date factual/statistical
material (where this is appropriate).
5.Ability to think and to reason logically and consistently in the writing of the
report.
6.Good use of a wide range of academic sources in the writing of the report, all of
which have been fully and comprehensively referenced in the bibliography.
7.Ability to write in clear and grammatically-correct English, with proper use of
paragraphs including both an opening/introductory paragraph that sets the
scene and concluding paragraph bringing together the issues discussed is the
report.
8.Ability to come to a clear set of independent, yet intelligent and well informed,
conclusions that derive from the arguments contained in the rest of the report
and the evidence cited.
9. The use of good written and communication skills in the presentation of the
report, including typing, spelling, punctuation, sentence construction, the
drawing of tables, the presentation of statistical material, the use of footnotes
and the overall lay-out of the report.