Smartphone+Demand+Lifts+Output+by+Yipsum

//**REMEMBER: DO NOT SUMMARIZE THE ARTICLE!!!**//

=TITLE OF EXTRACT:= Smartphone demand lifts output

=SOURCE:= Shanghai Daily []

=DATE EXTRACT WAS WRITTEN:= March 23, 2012

=DATE CURRENT EVENT WAS WRITTEN:= March 25, 2012

=EXPLANATION OF THE ECONOMIC THEORY RELATED TO THE ARTICLE:= In the mobile phone industry, demand for mobile phones increases perhaps due to low cost. As a result, the demand curve shifts to the right and a new equilibrium is reached, which produces at a greater quantity and higher price than the original equilibrium. To return the price of mobile phones to the original equilibrium, firms increase their supply of mobile phones so that the quantity demanded/produced increases even more but price decreases.

=VOCABULARY TERMS AND DEFINITIONS:= > =DIAGRAMS:=
 * Equilibrium: a condition where a market price is established through competition such that the amount of goods or services sought by buyers is equal to the amount of goods or services produced by sellers
 * Demand: the quantities of products consumers are willing and able to buy at certain prices at a given time
 * Supply: the quantities of products a firm is willing and able to produce at certain prices during a given time.

In this graph we can see that the original equilibrium is at a, where the industry is producing at quantity Q1 at price P1. However the recent increase in demand has shifted the demand curve to the right (D2), and now there is a new equilibrium at b, where the industry is producing at quantity Q2 at price Q2. It can be seen that there is an increase in both price (P1 --> P2) and in quantity (Q1 --> Q2) between the two equilibriums.

It can be seen in the graphs that the firms chose to raise their supply of mobile phones to meet the increased demand. As a result, the supply curve moves to the right (S1 --> S2) and now the industry is producing at new equilibrium c, where the industry is still producing at price P1 or P3 but at quantity Q3. In this instance, price has decreased (P2--> P3) but quantity has increased yet again (Q2 --> Q3).

=EVALUATION:=

The industry has decided to counter act the increase of demand for mobile phones with an increase in supply of mobile phones. This is a smart move because by increasing both demand and supply in an industry, the market can expand and prosper, becoming more advanced in its field and attracting more consumers. Also, by increasing supply, the price level goes down again so the product is more appealing to other customers. With more customers buying the product, this raises greater awareness about the product and helps the firm with advertising for the product. In essence, as quantity shifts to te right, both producers and consumers are profitting. Producers benefit because more and more people are buying their products and they are able to gain a higher amount of revenue. Consumers profit because prices start to decline as firms enter into economies of scale and are able to produce more products at a proportionately lower cost. This is because as firms expand, they experience economies of scale, a situation that allows them to gain average cost advantages and reduce the cost spent to produce every unit of product. Economies of scale includes bulk buying, specialization, division of labor, and financial economies. As a result, they are able to lower their prices as their size gets bigger. This is definitely beneficial towards consumers, because they can pay less for the product and use remaining money to buy other goods and services, henceforth contributing to GPA. The decision to increase supply is good because it benefits both producers and consumers.