Cheaper Smartphone for the Youth

Samsung Galaxy S3 that are on many youths' wish list! 

Based on the news from Star Online entitled ' Government Working on Smartphone Rebate', the Prime Minister of Malaysia Datuk Seri Najib Tun Razak has announced the Budget Plan 2013 that has become the hot topics for everyone in Malaysia. One of the highlights was government allocating RM300 million for the matter of smartphone rebate mechanism, which entitled Malaysians aged between 21 and 30, earning up to RM3000 a rebate of RM200 when purchasing smartphone. Accordingly, the purpose of this mechanism is to provide financial assistance for the youth in acquiring a smartphone as it is considered an essential gadget nowadays in order to have access to the latest information anywhere, anytime. Once the smartphone rebate mechanism is fully implemented, it will influence the microeconomic aspects of the country.

Assuming the rebate mechanism for smartphone is successfully implemented, this makes the purchasing of smartphone possible for the poor. More people from the age groups will begin their search activity for their ideal smartphones, taking into account their budget most of the time. The law of demand states that when other things remain the same, the lower the price of a good, the greater is the quantity demanded.  With the rebate mechanism implemented, a Samsung Galaxy Mini smartphone for example, which usually cost about RM600 will now only cost the consumers RM400.  This will surely increase the quantity demanded for that product. Of course, in reality not only the quantity demanded for Samsung Galaxy Mini smartphone will increase, the quantity demanded for all different brands of smartphone will increase as well. This is due to the fact that the opportunity cost of purchasing a smartphone has lowered down.

However, the opportunity cost of purchasing smartphone will not necessarily lower down for some individual as the smartphone they intend to purchase may cost over RM1000-2000 above, hence a rebate of RM200 may not make a lot of difference. Besides that, the targeted beneficiaries who are from family that has a lower income will mostly hugely benefit a rebate of RM200. Those who earned only up to RM3000 but comes from a well off family background may not see RM200 as anything significant. Therefore, the increase of quantity demanded for smartphone might only affect smartphone with a price of about RM1000-RM1500 maximum.

Quantity demanded for complement goods of the smartphone may also increase; such as the smartphone accessories like phone cases, earphones as there are more people owning a smartphone. As a smartphone is useless without a mobile data package plan, the quantity demanded for data package plan provided by telecommunication companies may increase as well. This factor will lead to a decrease of quantity demand in prepaid plan from telecommunication companies and an increase of quantity demand in postpaid plan for their smartphone as postpaid plan provide a more worthy data package plan.

Substitutes of smartphones include laptop and tablet such as iPad and Samsung Tab. Quantity demanded for these might also decrease. Purchasing these will not entitle them a rebate of RM200. Other than that, the mobility and convenience of a smartphone is much better than the laptop and tablet. Hence, the opportunity cost of purchasing tablet and laptop is higher compared to a smartphone. Besides that, when comparing a smartphone with a laptop or tablet, smartphone will be seen more as a necessities, less a luxurious goods. Therefore, the beneficiary from the rebate mechanism will prefer to purchase a smartphone compared to the substitutes.

The law of supply states that when other things remain the same, the lower the price of a good, the smaller is the quantity supplied. However in this case, since the rebate of RM200 is given by the government, it will not affect the price of the smartphones hence the quantity supplied will not be affected. Still, dealers are said to be the one who take advantage of the rebate mechanism the most, as they are the one who profit the most. For the benefited consumers, they will have to incur an amount of money for them to take advantage of the rebate mechanism. This rebate will somehow force the youths to make the purchase of smartphone now rather than after the rebate mechanism is expired. Hence, dealers will see an increase in sales of smartphones in near future after the implementation. This will then lead to an increase in quantity supplied of smartphones.

The next issue to discuss is the price elasticity of demand which is a units free measure of the responsiveness of the quantity demanded of a good to a change in its price when all other influences on buying plans remain the same. Smartphone generally is an elastic demand as it is not a necessity but it is an expensive goods. It is a luxury compared to normal mobile phones. Therefore, the rebate may encourage people in getting a smartphone since they can purchase one with a cheaper price.

The total revenue from the sale of a good equals the price of the good multiplied by the quantity sold. When a price changes, total revenue also changes. Smartphone has an elastic demand, hence a one percent price cut increases the quantity sold by more than one percent and total revenue increases. Still, whether smartphone is a luxury or necessity depends on the level of income. For people with low income, smartphone can be a luxury but not for people with higher income. Although only people who earn up to RM3000 per month and aged between 21 to 30 is consider have a lower income, some of them may have extra pocket money given by their parents thus making smartphone no longer a luxury for them.

As a conclusion, once smartphone rebate mechanism is implemented, the youth who earn up to RM3000 per month will cause an increase in quantity demand for smartphone. As the quantity demanded for smartphone increase, quantity supplied for smartphone by the dealers may also increase. However, due to the changing lifestyle of the current generation nowadays, smartphone may become a necessity rather a luxury.