Elasticity of Demand and Costs
This never used to be an important factor in the demand for mobile phones but with the increase in ownership by teenagers (due to the increased availability of pre-pay packages) it has been made one of the operators' main concerns. The teenage market for mobile phones is booming and because of this the demand for mobile phones has become more inelastic.
The demand was previously elastic. An increase in price resulted in a much larger decrease in quantity demanded. This means that before, consumers were more conscious of the price they paid and were unwilling to stand for large price hikes. Now, the demand has become much more inelastic. The same increase in price results in a much smaller decrease in quantity demanded, meaning that people, mainly the teenage market, are less aware of the price and are willing to stand price increases. However, at the same time supply has increased. This is mainly down to developments in mobile technology meaning that mass production of mobile phones has become cheaper and more cost effective. At the same time, providing the mobile telephone service has gone down in price due to the fact that the networks running in the UK need very little development now that they are established. This increase in supply brings the price down as well as increasing the quantity supplied at the equilibrium.
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