22.

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ASSIGNMENT – Smartwatch
Asim Hameed

ID: 23217
1. Describe the Smartwatch market.

a) Who are the buyers? Identify three needs/wants of the consumers that a
Smartwatch fulfills.

Generally the buyers are retail outlets, Individuals and corporate entities for distribution to
emloyees or their valued customers.

Three needs of the consumers that a Smartwatch fulfills

1. Medical and health care to improve health care of customers

2. Personal assistance and information – location based searches and context-aware
management of calendar.
3. IoT- Internet of Things – communication technology

b) Who are the sellers? Identify three sellers and highlight their differentiating
features.

Sellers of Apple smartwatches are authorized dealers / franchises of Apple stores/ apple
stores.

Pebble Long battery life

LG

Samsung

1. : Smartwatches have long battery life relatives to other Smartwatches.

2. : Samsung Gear resolution is 480 x 360 it’s far better than other competitors.
3. LGThe processor of LG is 1.2 GHz quad core is better than other sellers.

2. Choose the right option in the below statements about the Smartwatch industry and
explain your choice very briefly.

a. Apple watch is a consumer/capital good? -1 explanations missing

Consumer product.

b. Study of the Smartwatch industry is a microeconomic/macroeconomic topic.

Microeconomics.
3. The Smartwatch Group predicted 250% annual growth in sales of the Smartwatch
industry for several years. The industry sales were low till middle of 2014 (about
700,000 Smartwatches shipped worldwide). But the sales were expected to surpass
traditional watch sales in 2018 and become a six-billion-dollar market by 2020.

Sketch a diagram for (a) Smartwatch market and (b) traditional watch market to reflect the
above scenario i.e. reflect the growth from 2014 to 2020. State your assumptions.
1/3
a) Smartwatch Market you should have shown demand/supply for each
market and then shift demands according to the

2,450,000
information

1,900,000
1,451,520
1,209,600
1,008,000
840,000
700,000
2014

2015

2016

2017

2018

2019

2020
1 2 3 4 5 6 7

Assumption:

In year 2014, 700,000 units of smartwatches were sold and with 250% growth in recent years it
is assumed that 2,450,000 units were sold. The units sold during the period from 2014 – 2020 is
assumed.

b) Traditional Market
1,450,000

1,350,000
1,250,000

1,250,000
1,100,000
1,050,000
1,000,000
2014

2015

2016

2017

2018

2019

2020

1 2 3 4 5 6 7

Assumption:
In 2018, the sales of smartwatches surpassed the traditional watches sales. The traditional
watches sales is assumed declined afterwards. The traditional watches units sold are assumed
for presentation purpose.

4. Explain, using a demand-supply diagram, the “complementarity between

Smartwatches and phones”. How are the “attributes and pricing of accessories such
as Smartwatches a key weapon in the mobile phone competitive battle”?

If we assumed smartwatch and phones are complementary products then if there is any change
in the attributes and prices of the accessories of phone it will directly impact on the Smartwatch.
1.5/3

Right shift movement when price of Left shift movement when price of
complementary goods will fall down. complementary goods will rise.

Hence, the prices of Smartphone can indeed play a vital role in price of phones.

5. Consider Figure 1 on Page 5 of the case study which shows the Apple Watch pricing
strategy and answer the following questions.

a) What is/are the dependent variable/s in the model?

The quantity demanded of the apple watch is the dependent variable.

b) What is/are the independent variable/s in the model?

“PAW, P GEARS, PPEBBLE, PIPHONE6, are all independent variables.

c) Explain the “sign” of the coefficients of the following variables i.e. explain why the coefficient
of the variable is negative or why it is positive? Use the right terminologies. 2/5
in ii - iv,
a. PAW: The negative sign shows the inverse relation between price and demand of Apple should
Smartwatches. If the price will decrease the demand of apple Smartwatches will increase.
have
b. PGears: The positive sign of Pgears shows the direct relation between price of Pgears and
demand of Smartwatches. The price of Pgears will increase then quantity demand of
mentioned
Smartwatches will increase. substitute/
c. Ppebble: The positive sign of Ppebble shows the direct relation between price of Ppebblecomplime
and demand of apple Smartwatches. The price of Ppebble will increase then quantity nt
demand of apple Smartwatches will increase.
a) PiPhone6: The negative sign shows the inverse relation between price and demand of apple
Smartwatches. If the price of Piphone 6 will decrease the demand of apple Smartwatches
increase.
b) A: The positive sign shows the direct relationship between advertising budget and quantity
demand of apple Smartwatches. If the advertising budget will increase then the quantity
demand of the apple Smartwatches will increase.

6. Consideration of scenario:

a) Calculate the QAW, using the above values and the demand function.

QAW = 177200

b) Calculate Qaw, only changing PAW to values given in the table. This means keep
PgearS , PPebble , PiPhone6 and A fixed.

Paw 300 310 320 349 350 360 380 390 400
Qaw 294,800 270,800 246,800 177,200 174,800 150,800 102,800 7,880 54,800

c) Using the table above draw a demand curve (use MS Excel line chart option). Take
QAW on Y-axis and PAW on X-Axis. Like a typical demand curve, your curve
should be downward sloping.

Price QAW

300 294,800

310 270,800

320 246,800

349 177,200

350 174,800

360 150,800

380 102,800

390 78,800

400 54,800
 -1 axis not labelled

350000
300000
250000
200000
150000
100000
50000
0
300 320 340 360 380 400

Qaw

d) For each of the situations below, explain the effect on the demand curve i.e. is it a
movement along the curve, a rightward shift, or a leftward shift?

Calculate the change in QAW and label the variable as New_QAW. Use the same
range for PAW i.e $300$400 to draw an updated demand schedule. Graph a new
demand curve (if there is a shift). Keep all other variables, except the one
mentioned, as fixed. For example, in (b) only PGears changes to $400, rest of the
values remain as given above i.e. PAW = 349, PPebble = $220, PiPhone6 = $299,
A=$15,500

a) Increase in price of AW from $349 to $400

If prices of the apple watch, increases then demand of the apple watch decrease.
5/10 values missing
P
400

349

b) Increase in price of Gear S from $380 to $400

If Pgears prices increase then demand of the apple watch shift upward because pgears
and apple watch has both are substitutes.

Q
 c) Decrease in price of Pebble from $220 to $150

If the prices of the Pebble decrease the demand of the apple watch decreases.

d) Decrease in price of iPhone6 from $299 to $250.

If the price of the apple i-phone6 decreases then demand of the apple watches increase
because it is complementary goods.
P

e) Increase in Advertising budget from $15,500 to $ 17,000.

If an increase in the budget of advertising, then demand of the apple watch increase.
P

7. What is the marginal cost of producing one more Apple Watch? In other words, what
is the Opportunity Cost to the company of producing one more Apple Watch?

-1
Formula of Marginal cost=change in price/change in quantity

Therefore, the marginal cost of the apple Smartwatch will be 0.00204

8. How will Apple’s entry in the Smartwatch industry impact the following? (3 points)

a) The other suppliers. Sketch a diagram to show the affect.

Demand of other supplier will decrease when Apple will enter into the competition.

-1
Not according to case study. Cost of production is likely to fall and
availability of components will increase so supply curve will shift outward.

Demand of other supplier

a. Heath care industry have their own product, new entry into their market will impact their
product sales. -1
b. Society will be beneficial in general by enjoying the features for which they would have to
carry multiple devises – now with the apple watches it become possible for them to
manage multiple activities with one device.

9. Do you own a Smartwatch? If not, find a friend or family member who does. Ask
you/they following questions.

a) Which Smartwatch brand do you/they have?

Apple series 3
b) What price did you/they buy it for?
Rs. 42,000.
c) What was your/their budget constraint when buying the watch?
No.
d) What was yours/their opportunity cost in buying the watch? Explain in terms of what
you/they gave up to buy it.
Either to buy a new model phone or a smartwatch. So, smartwatch become a choice
over a phone.
e) Why did you/they choose the brand you/they did? What were the “substitutes” or
“complements” involved in the purchase decision?
complementory because of already having iphone and ipad.
f) Would you/they want to buy an upgrade when it is released?
Likely not. New models are so high in price nowadays.
g) If yes, what is your/their reservation price for it? If no, why?
At least near to Samsung smartwatches.
h) The watch can most likely be resold. How much can you/they resell it for? (If you/they
don’t know exactly, come up with a reasonable estimate, for example 60% of the
original value)
Minimum Rs 30,000
i) If you/they don’t sell it, what is the opportunity cost of keeping it?
Nothing. -1;
OC is the resale value forgone if watch is kept. Rs 30,000 in your case