Apple Computer Group IV presented topics on Apple's economics including: 1) The history of Apple from its founding in a garage to expanding into various computer products. 2) Apple's use of advertising campaigns to appeal to younger audiences and promote its brand over competitors. 3) Economic concepts like monopoly power in MP3 players, potential transition to an oligopoly, and the factors that influence supply and demand for Apple's products. 4) Financial topics such as government intervention, Apple's stock performance, and future projections.

1. Apple Computer, Inc.
Economics 101-01
Group IV
Mark Bender, Mike Rush, Alicia Sutton, Angelo Granata, Zack Klingensmith

2. Topics for Discussion
Zack Klingensmith Alicia Sutton
• History/Background • Monopoly
• Advertising • Transition
• Wage Discrimination • Oligopoly
Mike Rush Mark Bender
• Economic Questions • Government Intervention
• Ceterus Paribus • The Stock Market
• Summary
Angelo Granata
• Substitutes/Complements Questions and Answers
• Elasticity

3. History
•Founded in 1976 by
Current Apple Products
Steve Jobs, Steve
•Personal Computers
Wozniak, and Ronald
•Laptops/Notebooks
Wayne.
•iTunes/Music Downloads
•Company started by
•Servers
selling handmade
•Much More…
computers that were
manufactured in
a garage.
•Has since expanded its
market into a wide range
of computer associated
materials.

4. History of Macs

5. The “Look” of Apple
• Apple targets a younger
audience by appearing
as a much more casual
company
• We decided to dress as
we did to represent
Apple as well as we
could
• Notice Steve Jobs at the
shareholders meeting:

6. Consumer Choice
• Scarcity is the reason the study of
economics exists.
• If everyone had unlimited time and money,
everyone would own the best computer
possible.
• Apple must try to convince consumers that
they should spend money on their product
and not on Dells or Compaqs or Sonys…
• The most popular way…

8. “I’m a Mac” vs. “I’m a PC”
•Apples newest ad
campaign
•Boring vs. Hip
•Set to make Macs seem
like the “cool” thing to do
•Long series of commercials
•If you were in the market…

9. the pc
• drab
• boring
• plain
• all work
• no multimedia
• virus-prone

11. Wage Discrimination
Q: Who is this?
– Born to Unmarried Syrian Father and
American Mother
– Put up for Adoption
– Dropped out of College
– Now makes $1/year salary
A: Steve Jobs

12. Wage Discrimination
• Steve Job’s Salary…
• $1/year
• Sweatshop Worker’s Salary
• $50/month ($600/year)
• Steve Job’s Stock Option
• $381,000,000.00
• Sweatshop Worker’s Stock Option
• Non-existent

13. Topics for Discussion
Zack Klingensmith Alicia Sutton
• History/Background • Monopoly
• Advertising • Transition
• Wage Discrimination • Oligopoly
Mike Rush Mark Bender
• Economic Questions • Government Intervention
• Ceterus Paribus • The Stock Market
• Summary
Angelo Granata
• Substitutes/Complements Questions and Answers
• Elasticity

14. The Three Basic Economic Questions
What to produce?
• Computers
• MP3 Players
• Software

15. The Three Basic Economic Questions
How to produce?
• Assembly Lines
• Robots
• Sweatshops

16. The Three Basic Economic Questions
For whom to produce?
• Small Businesses
• Big Businesses
• Individuals

17. The Three Basic Economic Questions
The Basic Rule:
If you can afford it,
APPLE WILL SELL IT!

18. The Ceteris Paribus Factors of
Demand
• INCOME- Economy is doing well and as a result
buyers are having more money to spend
• NUMBER OF CONSUMERS- More and more
people are now becoming interested in Apple computers,
iPod and software
• EXPECTATIONS OF BUYERS- Buyers of Apple’s
products hope and expect that the iPod and other
products will become more inexpensive as more are
bought and produced. Additionally, consumers also
expect Apple to be able to produce to their demand.

19. The Ceteris Paribus Factors of
Demand
• PRICES OF RELATED GOODS- There are many
substitutes in both the computer and MP3 player
industries. The substitutes in the computer industry are
very comparable, but the substitutes in the MP3 are not
at all close to the iPod, which was the pioneer in the
field.
• TASTES- Apple has been able to figure out its
customers tastes and adapt its products to fit those
tastes.

20. The Ceteris Paribus Factors of
Supply
• INPUT PRICES- The prices to make Apple’s products
have been becoming less and less due to foreign
countries and foreign companies making the products at
much less of a cost.
• NUMBERS OF SELLERS- In the computer field
there are many other sellers; however, in the field of
MP3 players, Apple is the pioneer and holds the majority
of the market share in that industry.

21. The Ceteris Paribus Factors of
Supply
• EXPECTATIONS OF SELLERS- Apple is always
updating its equipment and software. As a result, it is
also finding ways to become more efficient and thus
lowering the price of its goods.
• PRICES OF ALTERNATIVE GOODS- Apple
computers are slightly more expensive than its
competitors. Its MP3 player, the iPod, can also be
slightly more expensive; however, it is also more
technologically advanced than its rival players.
• TECHNOLOGY- Because Apple is involved in the
technology industry, it must be constantly updating itself
if it wants to compete with its adversaries

22. Topics for Discussion
Zack Klingensmith Alicia Sutton
• History/Background • Monopoly
• Advertising • Transition
• Wage Discrimination • Oligopoly
Mike Rush Mark Bender
• Economic Questions • Government Intervention
• Ceterus Paribus • The Stock Market
• Summary
Angelo Granata
• Substitutes/Complements Questions and Answers
• Elasticity

23. Substitutes
• A good that can be • Apple has a large
used in place of selection in their iPod
another good that is line covering the
used for the same ranges of gigabyte
purpose. sizes, operating
• They are related such functions and price.
that an increase in the • There are many other
price of one will cause media players on the
an increase in the market that could be
demand for the other. substitutes to the
iPod.

24. Apple’s iPod’s and Substitutes
• If the price of metal used in the
construction of the iPod goes
up in price, then Apple could
switch to a substitute
• A substitute would be a less
expensive material such as a
plastic polymer that Apple
uses in the construction of
their notebooks.
• Results in an increase demand
for the plastic polymer
because of the increase in
price for the metal casing.

25. Complements
• Complements are
opposites of
substitutes.
• They are products
that are usually
consumed together.
• They are related such
that a decrease in the
price of one will cause
an increase in
demand for the other.

26. Apple iPod’s and Complements
If the price of Apple’s iPods went down,
then the demand for the complements
would increase. Some examples would
be
• Car application
• iTunes Song Downloads
• iPod Docking Stations
• Protective Sleeves
• Radio Transmitters

27. Elasticity
• Elasticity is the
degree to which
consumers respond
to price changes
• A measure of
sensitivity of one
variable to another
• Formula: absolute
value of percent
change in quantity
demanded divided by
the percent change in
price

28. Elasticity
• A value greater than 1 is an elastic good
• A value less than 1 is an inelastic good
• Factors that affect elasticity are the
availability of substitutes, consumer’s
budget and time restraint

29. Apple’s iTune’s and Elasticity
• Substitute for price elasticity of iTunes is to go
out and buy the CD
• Average price of an online album is $9.99
• Research firm Ipsos-Insight conducted a survey:
$7.99 was the best price for digital-music albums
• Consumers are still willing to pay between $10
and $12 for an actual CD
• Labels, artists and music publishers will make
more money with lower prices—finding the right
price elasticity

30. Apple’s iTune’s and Elasticity
• Steve Jobs, Apple’s CEO
said he’s still pursuing
iTunes because it helps
sell the iPod
• Apple knows there is
interest in the iTunes
store, but substitutes
such as illegal
downloading and the
purchasing of CD’s are
alternatives highly taken
• Price needs to come
down if consumers are to
start buying in large
numbers

31. Topics for Discussion
Zack Klingensmith Alicia Sutton
• History/Background • Monopoly
• Advertising • Transition
• Wage Discrimination • Oligopoly
Mike Rush Mark Bender
• Economic Questions • Government Intervention
• Ceterus Paribus • The Stock Market
• Summary
Angelo Granata
• Substitutes/Complements Questions and Answers
• Elasticity

32. Apple’s Monopoly on the MP3 Market
•Competitors can’t touch iPod
•Ease of use and ‘cool’ factor
•iPod turning many customers onto
the Apple brand
•Economies of scale achieved by
Apple
•Apple’s pole position
•The iPod has boosted Apple
Computer’s Mac sales and may
ultimately help the company get
into phones.
•The ultimate question is whether
Apple could survive in the phone
business

33. Transition From Monopoly
• The music industry is very profitable
• This means that MP3 players are also a
hot commodity as more and more music is
made available through pay-sites
• Other companies want to cash in on this
gold rush

34. Oligopoly on the Horizon?
• Stealing market share and
prices
• Apple’s biggest competitor
• Microsoft Corp.’s Zune
player slowly catching up to
Apple
Zune and iPod may become the equivalent of • Government Intervention
Coke and Pepsi in the MP3 world. Numbers at
this Apple News Site indicate Zune has leaped
(Talked about later)
ahead of Creative, Sandisk, and other devices • Creative-iPod battle heats
to grab the #2 spot in sales dollars. They also
indicate this is surprising because very few up
people even know what a Zune is yet,
including the sales people at retailers.

35. Topics for Discussion
Zack Klingensmith Alicia Sutton
• History/Background • Monopoly
• Advertising • Transition
• Wage Discrimination • Oligopoly
Mike Rush Mark Bender
• Economic Questions • Government Intervention
• Ceterus Paribus • The Stock Market
• Summary
Angelo Granata
• Substitutes/Complements Questions and Answers
• Elasticity

36. Apple and Government Intervention
• Government intervention in music downloading
industry created a demand for Apple’s iTunes
– Most successful pay music download application
(70% of market)
• US and French government legislation that
makes music downloads universal
– iPod’s and iTunes’ .DRV format will become released
to all downloading companies
– .AAC to .WMA files (Apple would have to switch)
– Could loosen Apple’s control of the music download
market allowing other competitors to sell music for the
iPod

37. Apple and the Financial Market
Past
Present
Future

38. Apple and the Financial Market
- Past -
• 1976 – Steve Jobs and Stephen Wozniak found
Apple. Third co-founder, Ronald Wayne drops
out 2 weeks later.
• 1980 – Apple goes public in the largest IPO
since Ford went public in 1956.
– The valuation is over $1.8 billion
– Over 40 of the 1,000 employees become millionaires

39. Apple and the Financial Market
- Present -
• Apple Computer Inc. (AAPL)’s stock quotes

40. Apple and the Financial Market
- Future -
• Fundamental analysis – a method of
predicting a stock’s price based on the
fundamental forces driving the firm’s future
earnings.

41. Apple and the Financial Market
- Future -
– Low-priced iPods and Mac computers using
Intel chips are expected to boost Apple sales
over the holiday
– The Microsoft Zune is expected to steal some
of the market-share away from Apple.
– Next year, Apple’s stock is expected to rise
with the release of iTV and an iPod cell-phone
– 2006 leaves Apple with share-gain potential.
Estimates for share are expected to rise in
2007 and again in 2008 due to a projected
increase in revenue (forbes.com).

42. Summary
Zack Klingensmith Alicia Sutton
• History/Background • Monopoly
• Advertising • Oligopoly
• Wage Discrimination
Mark Bender
Mike Rush • Government Intervention
• Economic Questions • The Stock Market
• Ceterus Paribus
Angelo Granata
• Substitutes/Complements
• Elasticity

43. Questions and Answers…
Do you have any questions…?

44. Thank You For Your
Support!
ECN 101-01
Group IV
Fall 2006