Smartphones No Longer a Want But a Need

Based on a news article on Budget 2013, it has stated that smartphone is no longer a type of want but it is a need for the teens these days. As we all know that, majority of the people own at least a smartphone nowadays in this digital era, especially the youths. Smartphone is not only a device which can make phone calls, send text messages, but also able to access to the internet, send and receive e-mails. They can easily get information from the internet by just few clicks on smartphones no matter where they are. In this scenario, smartphone is no longer a want but a need. With the increasing demand for smartphones, many of the suppliers such as Apple, Samsung, HTC and Blackberry are working hard to meet the growing demand. People will purchase a smartphone no matter how expensive the price is and choose it according to their preferred or favorite brand.

One of the facts and figures in Budget 2013 Malaysia which announced by our Prime Minister, Datuk Seri Najib Tun Razak on 28th  September 2012, stated that government will subside RM200 on purchasing smartphone for youths aged 21 to 30 with incomes of RM3,000 and below. Malaysian youths will be able to enjoy this rebate when purchasing one 3G smartphone from an authorized dealer. The Prime Minister who is also Finance Minister said that there will be a total amount of RM300 millions allocated for this project (package) and to benefit 1.5 million youths. Government will cooperate with the Malaysian Communications and Multimedia Commission and telecommunication companies to reach a better network system to access the information.

There are two types of subsidies which provided by government: subsidy for producers and subsidy for consumer. These two subsidies have different effects toward the market. Subsidy for producers will be of benefit to the suppliers. Subsidy will be deducted in cost of production and producers will more likely to produce and the quantity of supply will increase in the market. Hence, the supply curve will shift to the right and the demand curve stay constant. Then it formed a new equilibrium point which has a higher quantity but lower price. The gap between the origin curve and the new curve is a subsidy per unit.

Subsidy on Produces

Another subsidy will be the subsidy on consumer. This will increase the demand on certain product in market as the consumers are just needed to pay less than the origin price because part of the amount were already “paid” by government and it acts as rebate to the consumer. The demand curve will move to the right and this will form a new equilibrium which has a higher price and greater quantity.

Subsidy on Consumer

In this case, it is considered as the subsidy on demand-side as it is a rebate for the purchasing on smartphone for Malaysian youths. Demand on smartphone will increase due to consumers have limited income and they do not have to pay much on it. Hence the demand curve will move to the right. While at the same time, the supply curve remains constant. This will form a new equilibrium point with a higher price and higher quantity. The increased price does not mean that consumers have to pay more when purchasing smartphone but it is a sum of the origin market price with subsidy. Subsidy will cause an additional trades made. Suppliers are actually receiving additional profits as the consumers demanded more on smartphones. Suppliers can then maximize their profits to meet the demands. 

Smartphone is an elastic good as consumer can have variety brands to choose before they purchase a smartphone. They will choose the trusted brand and also the price of smartphones has not much of difference. Also the smartphones are substitute goods because they can substitute each other.  For example, a consumer chooses Iphone instead of Samsung as it is his or her favorite brand. Hence, Samsung is substituted by Iphone and this proves that smartphone is actually an elastic good. In additional, Samsung became the opportunity cost which is the second best that consumer foregone.

As the smartphone users are increasing, the telecommunication companies, for examples Maxis, Digi, Celcom will also upgrade their network system and provide more data plan for the users to have a well-perform on surfing. In this case, demand for data plan will also increase. Some of the telecommunication companies will also provide plans that attached with smartphone. With the government’s subsidy, the demand for smartphone will increase and the companies profit will then maximize too. In order to perform a better way in networking system, the companies might have to upgrade their system. They also might hire additional labors to achieve a good service for their customers. This shows that there will be an increasing in job opportunities in the market.

Job opportunities increased will lead the rate of unemployment become lower. A country should not have a high percentage of unemployment as this shows the country did not completing using their input (labor) in production. This is a waste and unemployment in Malaysia is becoming more serious as there are many graduated students from institutions of higher education still looking for a job. As to solve this problem, the more the job opportunities, the less the unemployed graduates.

Once they have a job, they will receive wages. Wages is defined as an income and they have the ability to buy goods. When an individual’s income increases, he or she will demand for more goods and services. They will try to make changes to have a better lifestyle. For instance, a fresh employed graduate who has an income below RM3, 000 can have a chance to own a smartphone as the government subsidies on it. When a person has incomes, he or she will have the power of buying goods and services, thus the quantity of demand will increase.

Subsidies from government will cause the change of demand then form a new equilibrium point. It is not just affect the demand but also other element such as people with lower income can afford to enjoy some luxury goods. Subsidy is an action which protects the consumer from the raise of price of product by the producers.

*Random Fact: Did you know that 80% of the world population now has a mobile phone?

By Wong Min Yiang