Evidence:

Evidence:

Evidence:
Proportion of Income
Due to COVID-19 pandemic, it has many countries to impose lockdowns, causing rising unemployment and worsening economic outlook. Additionally, it has caused major uncertainty among many Singaporeans and they are wondering when their next pay will be coming in. This forces many Singaporeans to search for phones that are affordable. During the circuit breaker period, there was a 178 per cent increase in searches by Singapore users for entry-level and mid-range models in April compared to March. In comparison, premium smartphones saw a 44 per cent increase in search activity in the same period.

Availability of Substitutes
There are many substitutes for these people to choose from instead of purchasing a high-end phone. For instance, in the article, the best selling Samsung Phone is the mid-range Samsung Galaxy A51 while their flagship model, Samsung Galaxy S20+, was the third best selling phone. 

Therefore, it is evident that the price elasticity of smartphones is elastic as the drop in income has forced a response in people to choose a more affordable option. Moreover, there is a variety of other cheaper options for people to choose from.

 

In a study conducted, the various factors affecting taste and preferences are:

The COO of a smartphone company affects the preferences of consumers as certain consumers prefer a certain country. In a study conducted in Singapore in 2017, the top 3 countries consumers preferred were

1. Korea

2. USA

3. Japan

According to the study, Samsung, Apple and Nokia were the top rated ones respectively. Furthermore, these companies got a relatively high proportion of an "Unsure" rating –  Apple (54%), Samsung (39%) and Nokia (11%). This suggests that users of these brands continue to use their products due to the branding of the smartphone company, and their loyalty to it.

According to the study, when it comes to purchasing a phone, Singaporeans find that the top three most important features are:
i. Battery Life
ii. Durability
iii. Internal Storage

In the 4th position is warranty followed by camera quality and price which came in 5th. This suggests the preferences in the specifications of a mobile phone that Singaporeans are more likely to consider before purchasing a phone.

Reference: https://www.researchgate.net/publication/331477630_Consumer_Choice_Criteria_for_Smart_Phones_in_Singapore

- This has translated into the Smartphone industry, as consumers will be worried about their spending and will thus hold off the buying of new phones, or at the very least opt for phones brands that are inferior goods compared to more “luxurious” normal good brands such as Apple and Samsung that are more costly.

Furthermore, Globally

Market research firms Euromonitor and IDC stated that:

This therefore indicates that the global effects (encompasses Singapore) for the Smartphone industry is generally negative due to the global Covid-19 pandemic affecting economies all over the world and in Singapore, thereby affecting buyers confidence and spending, leading to less Smartphone sales.

In conclusion, due to the GDP contraction and recession in 2020, consumers were more price conscious and frugal. New buyers who are more wary of their spending are purchasing phones from cheaper brands as compared to costlier brands, and the costlier brands in the Smartphone industry in Singapore has also seen a drop in the sales of smartphones due to the drop in GDP and median household incomes as consumers hold on to their current phones instead of buying the newest models, or buying models from cheaper affordable brands.

(2) General Price Trend (Inflation topic) in the Singapore Smartphone Industry

Phones are increasingly getting more expensive globally and in Singapore. For example, an iPhone 13 (flagship) can cost up to SGD $2,479 in 2021 whereas in 2017, the iPhone 10 (flagship) only costed up to SGD $1,888. The price increases are mainly attributed to these areas in our Economy:

Decline in Smartphone Sales

- More people own phones today and are continuously holding on to their devices longer as the quality of phones are increasingly durable and still contain relevant features.

- Leading to smartphone companies to increase the price of newer models to prevent a drop in their revenue and to make for the drop of sales

- Affecting smartphone prices in Singapore as the price changes have to be kept constant throughout the world.

Phones are more expensive to make.

- As the smartphone market gets more saturated, smartphone brands have to add more features to stand out from the competition

- Features such as wireless charging, more storage, multiple cameras and 5G usability make the cost of production of phones higher, and thus a more expensive phone base price.

- For example 5G features can add up to $200 to the cost of a phone. Thereby making the base price of phones to increase.

Increase in Smartphone prices overlooked by consumers

- In Singapore, they was a 88% mobile subscriber penetration in 2019(i,e Singtel,M1,etc) with a estimated increase to 90% in 2025

- Therefore, a majority of smartphone users have access to  different payment plans for smart phones such as a lump sum payment or a contract deal done over a year or more.

- Price increases to a phone will therefore be spread out over the length of the term which results in consumers overlooking the increase, and paying more.

For example, a $200 dollar increase is only $8 per month over 2 years. Thereby leading to consumers overlooking the price increase, and paying a higher price for phones leading to an increased inflated price.

Phones are a necessity in Singapore

- As the Singaporean Government is promoting digitalization through SG Smart Nation for a variety of reasons (efficiency,  environmentalism and etc.) more and more things are being done digitally

- Such examples of functions now being done digitally are filling taxes, applying for sole-proprietorships, applying for grants and relief, health appointments and etc.

- This would naturally mean that Singaporeans would have to use more digital items that will enable them to live work and play in this digitalized economy such as a Smartphone.

- This thus makes Smartphones a inelastic demand as users require them and regard them as a necessity and are thus vulnerable to price increases from Smartphone brands over time.

3) Unemployment Rate Of Singapore and how it affects the Smartphone industry

In 2020, the overall unemployment rate of Singapore was raised to 3.0 percent in 2020 from 2.3 percent in the year before. This will therefore result in more consumers being jobless leading to lower consumer spending.

This has thus affected the Smartphone Industry in Singapore causing a:

Also, unemployment in 2020 is mainly attributed to the Covid-19 pandemic, which is also a factor that affects the Smartphone industry.

With a mobile penetration rate of 159.1%, Singapore is the perfect market for ambitious smartphone vendors. In 2020, the top three smartphone brands that have a substantial market share in the Singapore market are:

1.  Apple (33.6%)
2. Samsung (29.18%) 
3. Huawei (14.73%). 

Market share is an indicator of a company’s competitiveness and when a company increases its market share, it improves its profitability. This will help to contribute to the economy as competition usually brings about:
- lower prices 
- better quality of goods and services
- greater variety 
- increased innovation.

Without competition, dominant firms can use their market power to:
- charge higher prices
- offer decreased quality 
- block potential competitors from entering the market 

This then decreases the level of entrepreneurship in the country. 

 

The smartphone industry can contribute to the economy by providing jobs in the domestic manufacturing industry. According to an article done by Lifewire, Singapore manufactures and supplies some key iPhone components such as 
- glass screens
- A-series processor
- touch-screen controller
-semi-conductors

Moreover, Apple maintains two companies to send these manufactured parts to be assembled into mobile phones. Those are companies are Foxconn and Petragon, which are both based in Taiwan. In Singapore, we are one of the many locations that Foxconn has chosen to maintain its factories at. Therefore, it can be seen that the smartphone industry is able to create jobs in the manufacturing industry which will ultimately contribute to Singapore's GDP.

 

From 2010 to 2019, the value of Singapore mobile phone exports has grown from USD$6,917 million to USD$11,444 million which is an increase of 84.7%. This contributes to the economy as the level of output from the industrial facilities is constantly increasing and an employment rate will also grow in tandem in order to keep these factories in operation.

Impact of the Smartphone industry to Singapore's Inflation

Since the rise of the smartphone industry, it has contributed to the inflation of Singapore's economy, this is happens in 2 ways, via the Direct and Indirect channel.

Direct Impact on Inflation
- Smartphones encompasses the functions and features of other devices (camera, television, mp3 players, etc.)
- Consumers therefore need not purchase these goods, thereby reducing the demand for them and cause a downward bias on price for these products that are replaced
- Thereby lowering aggregate inflation.

Indirect Impact on Inflation
- Increased smartphone usage exposes consumers to a plethora of online platforms that can alter consumers spending habits.
-  Platforms such as online stores will enable consumers a lower cost of gathering information and a larger selection of prices for goods and services
- Enabling consumers to easily compare prices and quality between sellers, lowering the sellers' power in the market which prevents price inflation on items with similar products and quality.

The rise in the smartphone industry thus increases competition in the market for various goods and services as it allows consumers a better way to compare prices and lower the power of sellers, thereby allowing a fairer, lower pricing which will indirectly lower inflation in Singapore

Facilitates the rise of the Digital Economy
The competition in the smartphone industry have led to greater advancements in the capabilities of smartphones which have helped to facilitate the rise of the internet economy. According to a report Google, Temasek and Bain & Company, the digital economy is also set to add US$10 billion to Singapore’s gross domestic product (GDP) by 2021. Moreover, the Singapore internet economy was worth $12 Billion in 2019 and it is projected to increase by $15 Billion to $27 Billion in 2025. This is mainly caused by the pandemic as city lockdowns, quarantines, and work from home stipulations have taken virtual events, online shopping, food delivery services, and digital banking to another level. 

According to a report done by WARC, one-third of Singaporeans have increased their app usage during Circuit Breaker. The following data shows a much greater breakdown of the app usage amongst Singaporeans:

Therefore, with the advancements of the capabilities of smartphones as well as greater adoption of it, will help to drive up the revenue of other industries that requires consumers to use a smartphone which would impact the overall Singapore economy as a whole.

6.https://www.gsma.com/mobileeconomy/wp-content/uploads/2020/06/GSMA_MobileEconomy_2020_AsiaPacific.pdf
[Part B (2)]
7. https://www.statista.com/statistics/1106103/forecast-of-annual-change-in-global-smartphone-shipments-impacted-by-covid-19/

8. https://www.mas.gov.sg/-/media/MAS/Monetary-Policy-and-Economics/Education-and-Research/Research/Economics-Essays/2018-Oct/SF-B-The-Impact-of-Technological-Progress-on-Inflation.pdf
[Part C]
9. https://www.mci.gov.sg/en/portfolios/digital-readiness/digital-readiness-blueprint [Part D]
10.  https://www.smartnation.gov.sg/about-smart-nation/pillars-of-smart-nation [Part D]
11. https://www.economicscafe.com.sg/2010-essay-question-5/ [Part A]
12. https://www.exportgenius.in/blog/singapore-mobile-phone-exports-singapore-export-data-market-view-484.php [Part C]
13. https://www.lifewire.com/where-is-the-iphone-made-1999503 [Part C]
14. https://www.straitstimes.com/business/economy/singapores-factory-future-taking-manufacturing-to-new-highs [Part C]
15. https://www.statista.com/statistics/814518/market-share-mobile-vendors-singapore/ [Part C]
16. https://www.warc.com/newsandopinion/news/singapore-shoppers-drive-growth-of-app-economy/en-gb/43904
[Part C]

- Singapore is a major financial hub in the Asia Pacific region and is one of the world’s most advanced economies. 

- It has an open economy and as a whole, is a free market where its economic freedom score is 89.7 in 2021. This ranks Singapore as the freest in the world for two consecutive years.

 

- Despite being a relatively small market with a lack of natural resources, Singapore's economy is one of the most stable in the world, with no foreign debt, high government revenue and a consistently positive surplus.

- Singapore’s GDP primarily consists of the service industry (about 70%) and goods production (about 25%) from 2019 to 2021. A minor percentage of about 0.03% comes from the agriculture industry. (statista.com)

 

- Singapore’s GDP is considered to be stable and high. This is reflected in the high standards of living of its citizens. 

 

- However, Covid-19 greatly impacted the global economy and Singapore was not spared. 

- The GDP of Singapore from 2019 to 2020 shrank inevitably from US$ 374.384 billion to US$ 339.998 billion respectively. 

This is a drop of 5.8% which is a significant decrease that can be attributed to Covid-19 and the constantly skyrocketing infections which impacted the livelihood of many.

 

- The reason for this decline in GDP is mainly due to the global pandemic that caused massive economic disruptions. It was significantly illustrated in 2020 when Singapore recorded its worst full-year recession since its independence.

 

- The country had to cope with the dramatic fall in demand and supply, such as the lack of demand for goods and services produced in Singapore due to the economic slowdown in major economies and global travel restrictions, supply chain disruptions as well as the Circuit Breaker from April to June 2020.

 

- The major part of Singapore's GDP is made up of the tourism sector. Because of the travel restrictions that are imposed, air passengers and tourist arrivals are significantly lower during 2020, thus causing the drop in GDP.

 

- Uncertainty about the evolution of the virus with the new emergence of new variants, erratic and constantly changing restrictions globally as well as has led to the decrease in GPA because of inaccurate or less ideal economic decisions to combat the recession. (https://www.mti.gov.sg)

 

- According to Singstat, in the third quarter of 2021, GDP growth is expected to come to a 7% growth.

This is a good sign of economic recovery considering the recovery of the global economy although it does not align with pre-pandemic levels. (https://www.singstat.gov.sg/gdp#:~:text=The%20Ministry%20of%20Trade%20and,5.0%20per%20cent%E2%80%9D%20in%202022.)

 

- The pace of recovery for each individual sector varies. For example, the F&B industry is seen to be getting back to pre-Covid-19 levels after Circuit Breaker and the less stringent social distancing restrictions in Singapore. 

This is in contrast to industries such as tourism which are predicted to remain below pre-pandemic levels at the end of 2021 as a result of restrictions on travel between different countries and people’s fear of contracting the virus.

 

- With many people losing their jobs or experiencing a pay cut due to the pandemic, more people are more thrifty and cautious and are more likely to save money or cut down on expenses. Thus, due to the lack of a secure income, many are deterred from spending lavishly and thus, the GPA decreases.

 

- Overall, the GDP of Singapore fluctuated due to the different challenges met each year from pre-pandemic in 2019 to Circuit Breaker in 2020 and is on the road to recovery after the economic trough. 

 

- The overall annual average unemployment rate increased from 2.3% at the end of 2019 to 3.0% in 2020 which is a 30.4% increase due to the occurrence of the pandemic that caused a global recession which detrimentally affects the income of many workers. 

Thus, it is not surprising that the unemployment rate has skyrocketed in 2020.

 

- However, the overall unemployment rate slowly shrinks as we advance into 2021 where the rate was 3.3% at the start of January 2021, going down to 2.6% in July 2021. (https://tradingeconomics.com/singapore/unemployment-rate) 

 

- Overall, Covid-19 and the recession has changed consumers’ priorities especially in terms of the way they spend. 

This causes a fall in demand for goods and services that are considered to be inelastic such as an expensive smartphone. 

This then forces companies and employers to cut down on production which leads to an increase in retrenchment as to cut down expenses for the decrease in production levels. 

 

- With more travel restrictions imposed, local employers who are in dire need of manpower would have to turn to hire locals as compared to foreign workers. 

This means an increase in expenses for these employers who would have to pay higher salaries which would leave many employers no choice but to reduce the number of employees in the business, thus leading to unemployment.

 

- Furthermore, the pandemic has halted supply and production in many industries as health concerns. The circuit breaker in 2020 has led to many delayed projects and production. 

The form of unemployment is Cyclical. It is caused by the lack of jobs during a recession and in this case, it's caused by the global pandemic. 

Many companies also opt for the work-from-home system which has delayed production rates and thus, led to an increase in unemployment due to the lack of open job opportunities and tightening on manpower quota.

 

- However, employment rates grew as the economy started to recover since the plummet, with relief provided by the government which has helped companies retain their employees. 

- In order to combat unemployment in the country, the government has put in place several support systems such as the Covid-19 recovery grant in hopes of helping individuals and small companies stay afloat during this pandemic. 

Citizens are eligible to apply for up to $700 per month whilst in the search for new income means. This contributed to the decrease in the unemployment rate.

 

- The government also offers courses for the working population to further their skills or learn something new, especially if they are actively seeking employment. 

These new skills that they have equipped themselves with would make them more employable and thus, these courses would aid the decrease of the unemployment rate.

 

- The inflation rate in Singapore declined from 0.57% in 2019 to -0.18% in 2020 when Covid-19 struck. This is a decrease of 75%. (https://www.channelnewsasia.com/business/singapore-headline-inflation-turns-negative-since-2016-covid-19-929656) 

 

In 2021, the inflation rate increase to 1.56% as compared to 2020.

 

CPI decreased by 0.7% in April 2020 from a flat reading in March 2020 due to larger declines in the cost of private transport, services as well as retail and other goods. This was all due to the occurring pandemic that happened. 

- The increase in inflation in 2021 occurred primarily due to an increase in demand for food and services and a decrease in the cost of production of goods and services, mainly in the retail sector.

 

- Cost of services rose sharply in October 2021 mainly because of the higher inflation of airfares and holiday expenses with the ease of border restrictions.

 

- Higher car prices and housing rents while the core inflation (excludes rents and private road transportation costs) has also climbed to its highest in nearly three years. 

 

- MAS and MTI highlighted that inflation in May rose to 0.8%. This is largely due to the low level of inflation during Circuit Breaker in 2020. 

The rising inflation rate is in line with inflation across the globe. Inflation in Singapore is predicted to remain elevated in the near future as global and regional economic recovery continues to pick up.

 

- MAS and MTI said: "On the domestic front, the labour market recovery is expected to become more entrenched with the easing of COVID-19 restrictions and a pickup in economic activity." 

(https://www.straitstimes.com/business/economy/singapore-overall-inflation-rises-to-32-in-october-highest-in-more-than-8-years)

- The demand-pull inflation greatly affects the rate of inflation in Singapore as it is a sustained rise in the general price level due to an increase in aggregate demand. 

When aggregate demand rises, rate of production will increase which will lead to an increase in demand in the economy that results in an inflation of prices. 

- Then, the cost of production will rise accordingly which will force firms to increase prices to maintain profitability. This results in a rise in the general price level. 

- Demand-pull inflation is significant in affecting Singapore's inflation rate as exports in Singapore are increasing rapidly as the world economy is expanding. 

- Singapore is a relatively small economy that is relies on external consumer base with the domestic exports making up a large proportion of the GDP (increase in exports = increase in aggregate demand). 

Thus, an increase in aggregate demand --> large rise in the general price level.