South-Western College Publishing - Economics  
Want an iPod? Buy a laptop.
Subject Because Apple iPods introduce young people to Apple products, students are beginning to buy more Apple laptops as well
Topic Supply and demand; monopolistic competition.
Key Words

Apple, iPod, Windows, price, discount, laptops.

News Story

Across college campuses nationwide, students are increasingly purchasing Apple computers. At the University of Arizona, for example, sales are up 50% over last year. Salespeople attribute the increase to a variety of factors: the availability of Microsoft Office on the Apple platform, the Apple discount that gives a $200 rebate on the purchase of an Apple iPod (the MP3 music player) with the purchase of a laptop; the low entry-level price of an Apple laptop (they can be purchased for as low as $1,000), and the lower vulnerability of Apple computers to Windows-based viruses.

Some students, however, are moving in the opposite direction. Having learned about the company by purchasing an Apple iPod to play music, they are now considering buying a computer from Apple as well. Those students tend to buy laptops for their superior portability, much like the iPod. Indeed, while 74% of all new computer sales are Windows-based PCs, 53% of Apple's sales in the third quarter of last year were laptop computers.

(Updated November, 2004)

Questions
1.

Using a graph of supply and demand, show how the increased sales of Apple iPods is affecting the market for Apple laptop computers.

2. In the market for Apple iPods, illustrate the impact of Apple's $200 rebate offer. Is this a shift in the demand curve, or simply a movement along the demand curve for iPods?
3. Assuming that the market for laptop computers is monopolistically competitive, as demand for Apple laptop computers increases, what would you expect to happen in this market in the long run? In other words, how would you expect other makers of laptop computers to respond? Explain your answer by looking at the particular characteristics of monopolistically competitive firms in the long run.
Source Jefferson Graham. "Students crazy about iPod follow the music to Apple laptops." The USA Today, 22 August 2004, http://www.usatoday.com.

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