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¶ … price elasticity as a means of identifying a brand's competitors. The possibility of using the concept of price elasticity to identify a brand's competitors implies a relationship between the two brands (substitution), and between their relative elasticity (cross price elasticity). This essay explores those relationships.
It has been said of the law of demand -- that the higher the price of a good, the less that consumers will purchase -- that it is the "most famous law in economics, and the one that economists are most sure of." This law is so certain and so consistently observed because it effectively predicts consumer behavior. The law of demand is in fact one of the basic principles of microeconomics (Anderson, McClellan, Overton and Wolfram, 1997).
The law of demand also makes it possible to measure how the price of a product or brand affects the demand for it. The most commonly used method to measure consumers' sensitivity to price is known as price elasticity of demand, and is simply defined as the proportionate change in demand given a change in price...
When the price of a product goes up, and the demand for it falls off, demand for the product is elastic. Conversely, when the price goes up and demand remains unchanged, that demand is said to be inelastic.
Given the relationship between a brand's price and its elasticity, the single most important factor that influences elasticity is the availability of substitutes (Investopedia, 2011). When consumers perceive that product X can be used in place of product Y, the products are substitutes for each other. Therefore, they are considered to be competing products, because substitute one for the other.
So what determines price elasticity of demand? The more close substitutes there are in the market, the more elastic is the demand for a product; consumers can more easily switch their demand if the price of one product changes relative to another (A S. Markets, n.d.). Again, there is the law of demand affecting not just consumption of one brand, but consumption of substitutes, that is, competing brands.
Price elasticity of demand also…
Works Cited
AS Markets (n.d.). Cross price elasticity of demand. Retrieved July 25, 2011 from http://tutor2u.net/economics/revision-notes/as-markets-crossprice-elasticity-of-demand.html
Anderson, P.L., McClellan, R.D., Overton, J.P. & Wolfram, G.L. (1997). Price elasticity of demand. Mackinac Center for Public Policy. Retrieved July 25, 2011 from http://www.mackinac.org/1247
EconPort. (2006). Cross price elasticity. Experimental Economics Center. Retrieved July 25, 2011 from http://www.econport.org/content/handbook/Elasticity/Cross-Price-Elasticity.html
Ellis-Christensen, T. (2011). What is price elasticity of demand? Retrieved July 25, 2011 from http://www.wisegeek.com/what-is-price-elasticity-of-demand.htm
Investopedia. (2011). Economics basics: Elasticity. Retrieved July 25, 2011 from http://www.investopedia.com/university/economics/economics4.asp
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The interest of certain categories of public in promoting this trend has significantly intensified. Therefore, the demanded quantity of organic products is likely to increase. 2. There are several factors that influence the organic products supply. The most important factors are represented by prices, costs of production, prices of traditional products, weather, and technology. In the case of the influence of prices, if they increase the supplied quantity of organic
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The article gives the example of China, where as much as $360 billion were allocated by the government towards the process of stimulating demand on the market. The process did not target only the car manufacturers, but rather all industries, while the instruments of actually putting the money to use ranged from fee vouchers to direct stimuli for the businesses. Countries such as Germany or the U.S. put in more
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