Price elasticity of demand refers to the degree to which demand changes given a change in price. Consider an example, if we sell our toothbrushes for $2, and demand is 100. If we increase the price of toothbrushes to $2.10, how much does that affect demand? That is price elasticity. There are basically two types of elasticity -- elastic demand and inelastic demand (NetMBA, 2010).
Elastic demand is a situation where the demand changes at a greater rate than the price changes. If the scenario above, the price change is 5%. If the product's demand changes from 100 to 90 based on this increase, the price elasticity of demand will be 2, because the demand changed 10%, and the price changed 5%. The other major type of elasticity is price inelasticity of demand. Say the demand only fell to 98. Thus, the demand fell 2%, when the price increased…… [Read More]
Economists Have to Say About Gasoline Price Elasticity
In contemporary society, the price of gasoline often appears to change in a fickle manner and most often seems unrelated to any real world global events as might be expected. Charging higher taxes for gasoline is considered a dubious strategy by many people since not everyone affected by the tax increase can elect to stop buying gasoline or buy less fuel for their cars in response to the tax change. Moreover, it is not feasible for everyone who currently drives to work to move closer to their place of employment, schedule carpooling, or arrange to telecommute. For a fairly substantial demographic, gasoline cannot be considered a normal good, as demand for it will not increase if income increases -- unless the increased incomes is truly substantive -- as they quite simply need and purchase fuel in order to get to work and…… [Read More]
Bury Price Elsticity
Will Bury's e-publishing invention tht cn produce both digitl text nd understndble digitlly-red text quickly from published books hs the potentil to completely disrupt digitl publishing, digitl recording nd wide spectrum of other trining-relted industries. His erly efforts t selling the recordings nd downlodble book files online hve been disppointing, showing n pprent lck of price elsticity in the mrket. One of the fundmentl shortcomings of his pricing strtegies is their lck of gility s it reltes to vlue-bsed pricing strtegy. Will need to relize tht the content of the books nd their reputtion for scrcity vs. ubiquity hs direct effect on their price elsticity curves (Xu, 2007). Will needs to lso do significntly greter level of experimenttion with pricing to determine how the customers he is ttrcting to his website view the recordings from vlue, substitution pricing theory, nd scrcity vs. ubiquity stndpoint. Sttic pricing for…… [Read More]
Bury Price Elasticity Service
Business Proposal for Will Bury Price Elasticity, Incremental Costs
Digitally recorded books (e-books) and digital content face several significant challenges from a price elasticity and market pricing perspective. The barriers to entry from digitizing content alone are low (Starkweather, 2004), with differentiation existing at the marketing, packaging, delivery technology and pricing strategy level. The intent of this proposal is to define how Will Bury will be able to increase revenues, determine the profit-maximizing quantity of music, use the concepts of marginal cost and marginal revenue to maximize profit, and also define a profitable mix of pricing and nonpricing strategies. Barriers to entry, product differentiation and cost reduction strategies are also profiled in this proposal.
Of the many options for defining a price for the digital goods including music and books, the two most prevalent are fixed-fee licensing (FFP) and per-copy licensing (PCP) (Starkweather, 2004).…… [Read More]
Second, it's possible to use price elasticity as an
indicator of a product or services' level of necessity or luxury, the
proportion of income required to purchase the item, and the time period
covered for the purchase all indicate highly elastic products. Inelastic
products often have many substitutes, are more commodity-like, and are sold
through bundling, convenience offers and drastic discounting.
Price elasticity then can be used to define competitors not only by
designating which products are potential substitutes, but also by the
percentage of a persons' income needed to complete the purchase and the
time horizon of the purchase. Most important of all, pricing elasticity
indicates which strategies competitors will take at the exclusion of price.
This can be insightful to see how a competitor in an inelastic market will
rely on promotional strategies, product bundling, new distribution
arrangements, and also even entirely next generation products to compete.
Pricing…… [Read More]
Price Elasticity of Demand
For a firm looking to boost its profits, it must consider how a change in price might affect the total profits. The most important concept to this analysis is price elasticity of demand. The underlying principle of price elasticity of demand is that a change in the price of a good will result in a change in demand. The degree to which this occurs is the rate of elasticity. Price elasticity of demand is determined by dividing the change in demand by the change in price. Alternatively, a variety of price points can be graphed and the slope of the demand curve can be determined (NetMBA, 2010).
In either case, a company that is seeking to maximize its revenues will need to determine the point at which it has achieved the optimal price and demand. This is the point at which the price multiplied by the…… [Read More]
The exclusivity of these higher-end products and their cost structures also are deliberately now being created to ensure barriers to entry from mass merchandisers. The threat of a mass merchandiser dominating the supply chain and driving down costs to sell on brand equity alone continues to force marketers of key brands in this industry to concentrate on defensible differentiation. As a result of all these strategies and the inherent structure of this industry the price elasticity of high-end cotton apparel continues to be protected from becoming too price-inelastic over time.
Total evenue Implications
Clearly the revenue implications of managing products with low price elasticity as toys are require an inordinate level of supply chain, distribution and logistics efficiency as the per-unit margins are already under severe pressure. For products that have higher levels of price elasticity there is the benefit of typically greater gross margins yet the constraint of longer…… [Read More]
Price Elasticity Airlines
The piece "Airlines try cutting business fares, find they don't lose revenue" explains how major airline firms in 2002 cut their business travel fares in an attempt to generate more business "and bring back business travelers who are staying at home, buying in advance or running to discount airlines" (McCartney, S. November 22, 2002). Of particular interest in this dynamic is the effect on total revenue generation resulting from the decrease in prices. Pricing logic might suggest that a decrease in fares would produce a loss in revenue however, in the case of Continental Airlines a fare decrease on a flight from Cleveland to Los Angeles from $2,000 to $716 resulted in Continental generating revenues equal to those at the previous higher rate, while gaining market share (McCartney, S. November 22, 2002). The rationale for this outcome can be explicated by the economic principle of price elasticity…… [Read More]
Price Elasticity of Demand: Four Factors
Strolling through the aisles at the local Boston Store led me to the Jeans department where I was overwhelmed with the selection: Guess, alph Lauren, Levi Strauss, Calvin Klein, and others. Which of these products would I purchase and how would the price elasticity of demand impact my decision? The definition of price elasticity is straightforward: "how much the quantity demanded changes when the price changes; the formula written as percent change in quantity demanded divided by the percent change in price" (NetMBA. N.D.). A good is considered elastic (>1) if a price change elicits a greater proportional change in quantity demanded. Inelastic (… [Read More]
As such, when evaluating the change in profit, we need to consider both alternatives and how the possible responses from the competitor will affect it. In the first case, with no response from the competitor, as I have mentioned previously, net sales are likely to increase due to positive price elasticity. In order to evaluate whether the net revenue is modified, we should use a figure example, considering the quantity sold
100 and price P = 10. The total net sales is 1000. On a 10% price cut (P = 9), we should estimate the quantity Q. At 115 (it shouldn't go up to 25%). As such, the net sales will be V = 1035, an increase of 35 units or 3.5%.
In the second scenario, the price cut will implicate a response from the competitor. The quantity will initially increase, only to later decrease after the competitor's price cut.…… [Read More]
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 olfram, 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…… [Read More]
The concept is proportion of income devoted to a good typically applies to discussions about the price elasticity of demand. The basic concept of price elasticity of demand is that it is relational to the percentage change in the price of a good. But the proportion of income devoted to a good will have an impact on the elasticity. The best way to illustrate this is by comparing two different products.
A person pays rent, and they like to buy a coffee every morning. If their rent is $1,000 per month and the coffee is $2 per day (so $40 per month). The price of each increases by 10%. The percentage price increase is the same, but the rent is a much larger proportion of income. So the increase in the price of rent is $100, and the increase in the price of coffee is $4. The consumer is…… [Read More]
Food Capital Budgeting
Strategy for Price Elasticity
Major effects of government policies on production and employment
Government egulations for fairness in the low-calorie, frozen microwavable food industry
Major Complexities in Expansion via Capital Projects & Key Actions
Convergence between the Interests of Stockholders and Managers
Strategy for Price Elasticity
The Price Elasticity is a tool that is used by economists and business to measure exactly the quantity response that is needed to adjust to a change in price. This gives a very good idea of the quantity that is supplied or demanded changes due to a change in the price. This is also defined by the degree of reaction of a demand or supply curve with respect to any change in price. The essentiality of a product often decides the price elasticity of the product and thus varies across a product range. The products that are considered to be necessities…… [Read More]
Price Elasticity and De Beers Diamond Engagement Rings
According to the online guide to economics, Investopedia, price elasticity is generally determined by the need of the consumer for a particular good or service. "Elasticity varies" among products because some products "may be perceived more essential" to the consumer. Products that are necessities tend to be more insensitive to price changes because consumers feel that they must "continue buying these products despite price increases." (Investopedia, 2005)
hat is defined as a necessity, of course, may vary from consumer to consumer. Clearly, food, shelter, and protection from the elements are all necessities. Not everyone needs caviar when money is tight, sometimes canned tuna fish will do -- but nor do many people exclaim, 'diamond prices are going down, let's get engaged -- twice!' Thus, how does one assess the price elasticity of a diamond engagement ring, as produced by a De Beers…… [Read More]
Elasticity of demand and supply as price increases is an important concept which helps us understand how changes in price affect demand for a certain product. In this case, we shall be discussing the price elasticity of beef and eggs to see how the price changes for each would affect demand for them. In true economic sense, price changes have an impact on consumption patterns and hence on demand provided the income and other factors remain constant. In this case, we assume that price of beef and eggs has increased but all other factors including income have remained unchanged.
INCEASE IN THE PICE OF BEEF:
Let us assume that price for one pound of beef was previously $1.50. But in the last one week, it has risen considerably to $2.25 per lb. Since income is constant, that factor doesn't come into play and only price alone can be held responsible…… [Read More]
Elasticity is a concept in microeconomics that reflects "the degree to which a demand or supply curve varies among products" (Investopedia, 2013). Thus, the degree to which demand or supply of a good changes with a change in the price. This dynamic can be calculated using the following formula:
Elasticity = (% change in quantity / % change in price)
In general, a good is characterized as elastic if the change in quantity is greater than the change in price, in other words if E > 1. If the change in quantity is lesser than the change in price, demand for the good is considered to be inelastic. If the demand changes exactly as the price changes, in order words if E = 1, then the good is said to be perfectly elastic. Perfect elasticity is uncommon, and is observed mostly in theoretical examples (Moffatt, 2013). There is also reverse…… [Read More]
Elasticity of Demand
Discuss elasticity of demand as it pertains to elastic, unit, and inelastic demand
Price elasticity of demand is the measure of the change in the demand of a given product as a response to a change of its price. When demand is inelastic (a value versatility less than 1), a value increase raises downright income, and a value reduction lessens absolute income. The point when interest is elastic (a value versatility more remarkable than 1), a value expansion lessens all out income, and a value decline increases downright income. The point when demand is unit elastic (a value versatility equivalent to 1), a change in cost does not influence absolute income (Dewett, 2010).
Discuss cross price elasticity as it pertains to substitute goods and complementary goods.
The Cross-Price Elasticity of Demand is used in measuring the rate of reaction of the amount requested of one item arising…… [Read More]
Prices should be increased to the point on the demand curve where marginal profit is at its highest (AmosEB, 2009).
Having an understanding of price or income elasticity of demand helps the firm to set its prices. It may also help to determine price floors as well. In addition, strategy and marketing can be affected as well. hat was once a sale price could become a new selling point; what was once thought too high for our product positioning could actually be our ideal price point. Understanding how your customers react to the moves that you make is an essential component of business success. All private sector leaders should be focused on finding the point on the demand curve with the highest possible profit.
No author. (2009). Economics basics: Elasticity. Investopedia. Retrieved December 7, 2009 from http://www.investopedia.com/university/economics/economics4.asp
Friedman, M. (1970). The social responsibility of business is to increase…… [Read More]
Price Targeting Industry
Customers usually complain that they purchased the same product or service at higher price than their friends did. This is actually the price targeting technique that sellers use in order to receive maximum profits or revenue. However, if the customers are aware of the actual price and sellers' technique then they can make a better deal.
Price targeting is one of favourite techniques of vendors to earn more profits since they can sell the same product or service at different prices to different customers. y this method, vendors identify point of transaction where consumer decides to purchase the product or service and is ready to pay amount close to the maximum price. Thus, the vendors may capture the consumer surplus.
Retailers make discrimination in prices because consumers also hide the maximum price that they are willing to pay off for the particular product or service.…… [Read More]
Add to this the hassle of tightened airport security, threats of disease outbreaks such as SARS, and increased risk of terrorism, and conferencing has become a booming market.
The price of compliments such as lodging and car rentals is increasing. The overall lodging industry earned an estimated $20.8 Billion in profit before taxes in 2005, and those earnings are expected to increase by 21% in 2006 thanks to an increase in revenue per available room defined as the occupancy rate times average daily room rate. In the second quarter of 2006, one of the world's largest hotel chains, the Marriott, has an increase in net income of 100% over the 2005 quarter. Revenue per available room was up 8.4% over 2005, the most in more than 20 years. Improved demand combined with higher supplier costs is placing upward pressure on car rental rates and surcharges. Average daily car rental costs…… [Read More]
Price and Quantity of Milk
A Scientific Study Declares Milk Good for the Human Body
In such a case, the quantity of milk demanded will increase. The increase in the quantity of milk demanded in this scenario can be attributed to the change in customer preferences. Here, the number of customers demanding the product (for its declared benefits) will increase. Further, it is also likely that the existing consumers of milk will increase their consumption of the same. The demand curve in this case will shift to the right.
Outbreak of the Mad Cow Disease
In this scenario, the quantity of milk demanded will not change. The reason for this has got to do with the fact that so far, there is no evidence linking the consumption of milk from cows having the mad cow disease with any adverse health effects on those who consume such milk. The key assumption…… [Read More]
Elasticity of Demand
Demand elasticities in government
Elasticity of demand and effect on indirect taxation.
Demand elasticities in business
Factors that affect the price elasticity of demand
In this paper, we discuss the microeconomic concept of elasticity of demand. Elasticity of demand, a term which refers to the responsiveness of the demand of a given commodity to change is very integral for the efficient operation of businesses and the government (Hays and DeLurgio,2008).The concept of elasticity of demand which in a way may refer to the responsiveness of the amount of quantity of a product which is demanded to the change in disposable income, price of a good as well as price of related goods is noted to be a subject of discussion in virtually all the textbooks on microeconomic principles. In this paper, we perform a critical evaluation of the view that the knowledge of the various elasticities of…… [Read More]
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 products is likely to increase also, because the company is interested in increasing its profits. The costs of production are also very important. If these costs increase, it will be more difficult for the company to produce these products, leading to reduced supply.
The prices of traditional products can determine the purchasing behavior of organic products buyers. If prices of traditional products increase, becoming similar to those of organic products, some of these customers can orient towards organic products, leading…… [Read More]
Price and Quantity of Milk When the Following Events Occur:
An advertising campaign highlights scientific studies that find drinking milk can help reduce weight gain.
Demand: the demand of milk will increase because it also serves another purpose i.e. weight reduction. The demand curve will move to the right to depict increase in quantity demanded. People are investing so much in weight reducing items like slim fast shakes, diet pills etc. If milk is able to offer the desired weight reduction, even those who were not using milk previously will now do so because it will serve two important purposes i.e. calcium requirement and weight reduction.
Supply: with increase in quantity demanded, supply will increase too. Supply curve will likewise show an upward shift
There is a mad cow disease epidemic.
Demand: demand or quantity demanded will decrease because mad cow disease can directly affect quality of milk. Demand of…… [Read More]
Price eduction Strategy
What are the implications for revenue and profits of implementing the price cut?
The implications for revenue and profits are dependent on the demands and supply of the product. If there is not enough demand for the product, a reduction in the price of the product by 10% is unlikely to boost the demand of the product. On the other hand, if there is sufficient demand of the product, a 10% reduction in the price of the product will have direct effect on the revenue and profits of the company. The reasoning behind is that the price elasticity of the product is 2.5%, higher than 1. Therefore, a reduction of 10% in the price will have about 2.5 times effect in the demand of the product. As far as meeting the target by the marketing managers, the managers would find it easier to meet its…… [Read More]
sex education is designed to increase teenagers "tastes" for premarital sex? How could it act to increase those "tastes"?
The desire for sexual contact is a natural, innate human desire and is not something that can suddenly be stimulated by knowledge like an advertising campaign can make you thirsty for soda. It is possible that sexual education can normalize sexuality and remove a sense of guilt teens might have; however, it can also normalize safe sex and abortion.
Why could the two consequences of sex education discussed above either raise or lower the number of teenage pregnancies that result?
Sex education can lower the number of teenage pregnancies by providing accurate information to teens about sexuality and disabusing them of myths such as the idea the withdrawal method is an effective form of birth control. It can also provide them with information about the best methods of birth control possible.…… [Read More]
Coca-Cola in dispensers located on a golf course sells for $1.25 a can, and golfers buy
1,000 cans. Assume the course raises the price to $1.26 (assume a penny raise is possible) and sales fall to 992 cans.
Using the midpoint formula, what is the price elasticity of demand for Coke at these prices?
Assume the demand for Coke is a linear line. Would the elasticity of demand be elastic or inelastic at 75 cents a can?
At $2.00 a can?
It would be far too narrow and incorrect to think of the concept of price elasticity as something which is connected solely to a mathematical formula. Pricing is a strategy which is an aspect of marketing which should not be based on guesswork as it is something which communicate the value of a product. "Price elasticity is the measurement of how quantity demanded of a good will…… [Read More]
and, as mentioned before, discrimination allows for a more flexible reallocation of capital, benefiting the customer by increasing research and development of other goods and services.
In the article "Taken to the Cleaners?" The author presents a real world case where dry cleaners are seemingly arbitrarily using price discrimination to mark up the price of dry cleaning for women's blouses vs. men's shirts. This is definitely a third-degree price discrimination, where different consumer's pay different prices. There are two separate markets, one composed entirely of men (or women who wear men's clothes), and the other composed entirely of women. Each is forced to pay different amounts for essentially the same service, thus this is price discrimination of the third degree. (Taken to the Cleaners?, 1998)
There are many real life examples of price discrimination. Take, for instance, the ubiquitous feature of most bars and nightclubs, "Ladies' Night," which offers discounts…… [Read More]
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 money than ritain into stimulating the car industry, important in the overall national economy of these countries and, at the same time, a potential social issue.
However, as the author pointed out, this was not the case in ritain, where the amount of money allocated for boosting supply was significantly lower than in these other comparable economies. The process of exchanging an old car for a new one, referred to as the "car scrappage scheme," was given only 400 million…… [Read More]
As such, there are relatively few substitute goods (other types of foods are more expensive and, as a result, cannot be considered as substitute goods), the level of necessity is high (fast food is, for many of the poorer communities, the only source of food and, because of this, people are willing to pay a higher price without changing their volume of consumption), but also because of habits: people who consume fast food will simply grow too attached to it to give it up even if the price is slightly increased.
There is also another important element to be mentioned: the price hikes were reasonably low. For a $5 ig Mac (the price is actually lower, but as a reference), the 3.3% increase in its price represents $0.165. The amount is significantly low, too low to be noticeable by the consumer when completing his individual purchase. Added over time and…… [Read More]
Price elasticity for this product was likely quite great, before the item was subsidized, as few consumers perceived it as a necessity. Only the costs of production limited the price elasticity, as the tanks are presumably not cheap to build. Of course, the government might protest that the product is a necessity, given the dire need for conservation, if Australia is to continue to have a sustainable source of drinking water. But preserving the environment is often a case where the micro interests of the household do not match up with the macro interests of the nation. Until the subsidy was created, a household in the short-term could save money by not purchasing the rain water tank, although in the long run the household may save both on water bills and also upon more costly solutions needed by the government, to ensure that the nation has a sustainable source of…… [Read More]
(Png; Lehman, 2007)
As far as supply is concerned, if one were to assume that all the firms within an industry, like for example, in a government holding, are identical, then a market supply curve would be made up of the supply curves of all the supply curves of the individual producers in the country. (Adams; Periton, 2006) the elasticity of demand therefore measures the responsiveness of the demand to the changes in the factors that may affect demand. Therefore, this means that the elasticities of demand can be estimated for price, income, prices of related products or services, and the advertising expenditure needed. (Png; Cheng, 2001) as far as the factors affecting elasticity of supply are concerned, one must note that the longer the time one takes over the supply of a product or a service, the more elastic the supply becomes. Supply is stated to be elastic if…… [Read More]
A price discrimination strategy is one where different customers are charged different amounts. The price charged for my shop's submarine sandwiches will therefore be different for locals than for visitors. There are a number of ways to achieve this. In the context of a sandwich shop, the prices are going to be listed publicly on the menu, so it is impossible to openly discriminate with respect to prices. One technique that can be utilized to lower the average cost for each sub-for locals is to offer a loyalty card. The local would then receive either a discount or a free sub-after making enough purchases. This would deliver a lower price to locals in the long run. Alternately, a loyalty club can allow the locals to receive discounts if they are members of the club. A certain amount of annual sales would be required for club membership, or even a…… [Read More]
Movie theaters should solve their problem by allowing for market pricing on seats at different showings. I would borrow a system that is in place at some discount airlines. This is a good business to take cues from because, like the movie theater business, they have regularly scheduled but perishable supply. The prices for each seat would depend on how many seats for the showing remained. The first, say, ten seats in the theater would be the lowest-priced, and then the prices can increase as the number of remaining seats decreased. The theater would therefore encourage people to forgo a popular showing for a less-popular one because of the money saved
The downside to this approach is that it does not explicitly solve the problem of having capacity overages. If there is excess supply, then the theater is simply shuffling the same number of customers around between different…… [Read More]
Second Degree Price Discrimination
Many companies may practice second-degree price discrimination without realizing it by offering volume discounts or charging more for higher quality products or services. To determine what second-degree price discrimination is in real-world settings and to identify appropriate examples of the practice, this paper reviews the relevant literature concerning second-degree price discrimination, followed by an analysis of its important aspects from an economic theoretical perspective. An examination concerning how producers discriminate between different types of consumers is followed by a discussion concerning welfare implications in the example and the potential role for governments to regulate this practice. A summary of the research and important findings are presented in the conclusion.
eview and Discussion
Whenever companies offer their products or services at a discounted price for volume purchases or set higher or lower prices depending on the quality of those goods or services, they are practicing second-price discrimination.…… [Read More]
It could not be expected that these measures would have an immediate impact on gasoline demand. Changes are likely to take some time before the real impact is felt. However, this slowing of demand growth is indicative that the process has begun and that it will continue to grow in the future.
The answer to resolving the issue of gasoline price in the future is the same for both short- and long-term goals. In order to control gasoline prices, supply and demand must be kept in a near-equilibrium state. However, OPEC will never allow this to happen, as this means that they are unable to maximize their profits by using their intricate knowledge of price elasticity and the market. The only reaction that the U.S. government has is to find alternatives to OPEC gasoline and to continue to find ways to decrease U.S. demand. Decreases in U.S. demand…… [Read More]
Likewise at the upper end the potential demand will equal zero at a given price point, thus there is no point at which a sale of one unit at near-infinite product exists.
The equilibrium point will be different for each product, but will always be the point at which total dollar profit is maximized. A steep decline in price may mean a steep increase in sales, but the result may be lower profit than if the margin was higher and sales lower. Thus, the best point at which the retailer would want to own a business that sells price elastic products is when the price is at the point of equilibrium that enables the retailer to maximize profit.
No author. (2009). Economics Basics: Elasticity. Investopedia. Retrieved September 13, 2009 from http://www.investopedia.com/university/economics/economics4.asp
Moffatt, Mike. (2009). Price Elasticity of Demand. About.com. Retrieved September 13, 2009 from http://economics.about.com/cs/micfrohelp/a/priceelasticity.htm… [Read More]
Oil prices across the globe are characterized by major swings and fluctuations, which have attracted considerable attention from scholars, policymakers, and practitioners. The increased attention in oil prices are attributable to the fact that they have significant impacts on the global economy. Based on academic literature, oil prices fluctuate for various reasons including supply disruptions, changes in global demand, and precautionary intentions. For instance, in the aftermath of the 2008 global economic recession, oil prices fell because of an overall decline in global demand (Lee & Huh, 2017). Fluctuations in oil prices have been evident since 2012 to the end of 2016 because of various factors that contribute to changes in these prices. Despite these various factors, there are several measures that are utilized to predict oil prices in the future. This paper discusses the reasons for changing oil prices, oil price fluctuations between 2012 and 2016, and prediction of…… [Read More]
Surge Is Unlikely for Prices of U.S. Gas," by Clifford Krauss (Krass, 2013). There were four main points of distinction embedded within the article. The first and arguable most important element within the article was in reference to the growing conflict in Syria. The article was written in late August when unrest in the Middle East was near its height. During this period, Americans were concerned with the subsequent rising oil prices that might occur due in part to the civil unrest occurring in Syria. The article first explains how gas prices are unlikely to increase due to a litany of factors. First, Syria is a very small oil exporter. It exports roughly 1% of the world's oil. As such, even if the entire country were to be engaged in war, the resulting damage in regards to oil exports would be minimal. Many pundits believe that the rippling effect of…… [Read More]
Calculate the Profit-Maximizing Price
To calculate the profit-maximizing price and output level of the firm, the paper starts from price $10 to $200. The paper uses the Excel software to calculate the quantity, revenue, marginal revenue, variable costs, total costs and marginal costs. The fixed costs of the firm are $120, which does not change no matter the level of quantity produced.
However, the variable costs decline with the increase in the quantity produced. The marginal costs remain the same.
Based on the calculation in the Table 1, the profit-maximizing price is $120, which is the price the marginal revenue reaches its peak at $2,590. The increase in production at this level will make the marginal revenue to decline from $2,590 to ($2,410) as being revealed in the Table 1. As the firm increases the production, the total revenue increases, however, when the total revenue reaches $361,080, this is…… [Read More]
Producing inexpensive restaurant meals for McDonald's has been highly profitable, given its ability to sell many burgers quickly and to create standardized franchises all over the world. Having the ability to produce in large volume also buffers a firm against the danger of a price-elastic good getting into a price war with other firms. In the case of Mattel and McDonald's, both firms are so large and have such brand recognition, they are protected to some extent of being forced to sell at such a low price they cannot cover their overhead.
Occasionally, pricing low does not achieve the desired objective: during boom times in some instances, the cheapest goods and services will sometimes experience a drop in demand, while higher-end purveyors will see the goods and services they sell become more in-demand. But selling price-elastic goods always requires clever and deliberate strategizing upon the part of the producer, unlike…… [Read More]
Elasticities & Market Structure
There are many different factors to consider when making strategic decision such as the one that Autoedge currently faces. The board of directors needs to consider many different implications that might occur if the company decides to relocate its manufacturing to the United States. If the company manufactures its products domestically, then one possible implication might be that this could add value in terms of consumer perceptions. Although it seems that the "Made in the USA" brand maybe a secondary consideration for many consumers, there is some evidence that it does actually add substantial value to products and services. For example, one study found that (Schurenberg, 2012):
"In a study of consumer perceptions of clothing made in the United States vs. that made in China, Jung Ha-Brookshire, an assistant professor at the University of Missouri, found that when offered a choice between a shirt made in…… [Read More]
While domestic demand has decreased in recent months in response to the price increases, demand in international markets, particularly in China and India, has continued to grow. The nature of demand in those markets means that demand there continues to be inelastic. With expanding economies that are increasing the wealth of the populace en mass, those countries are essentially creating millions of middle class consumers with middle class needs where they didn't exist before. There is no elasticity to the creation of new consumers, as few would reject the opportunity to join the middle class simply because gas prices are on the rise. Twenty years ago, global demand reflected almost entirely demand in the West, which was inelastic. Now that demand in the West is becoming elastic, some clearly feel that this should be the case for global demand as well. But demand in emerging markets is still inelastic, which…… [Read More]
Setting the right price is important for any product. There are many different approaches, based on the different variables that can be considered. For a new product in the marketplace, getting the price right is all the more difficult, because there is no prior data to help gauge the strength of the current brand, the price elasticity of demand or other factors that might come into play when pricing an established product. However, there is always an opportunity to adjust prices if the price of a good is not delivering the optimal financial results for the company. Thus, it requires management to have an understanding of pricing strategy in order to determine the most suitable price in the marketplace.
The most important thing to keep in mind is that price is one of the five Ps of marketing. Thus, the pricing strategy must be aligned with the other…… [Read More]
If the daily paper were more expensive, the elasticity would increase.
In terms of profit, the daily paper is a strong proposition. Clearly priced well above the variable cost, the daily paper takes advantage of the low price elasticity of demand to generate a strong contribution margin.
The $1.99 Sunday newspaper functions similarly to the daily. This paper, however, is packed with far more features. Thus, it is sought out by consumers rather than purchased on impulse. As a result, the price elasticity of demand for the Sunday paper is lower than for the daily editions. The significantly higher price reflects that.
In terms of profit, the Sunday paper is the key driver of contribution margin. The high price, combined with high circulation and strong ad yields, makes the Sunday paper the big earner for the Sun-Times. Low price elasticity of demand contributes to this contribution.
The monthly subscription has…… [Read More]
simulation featured a number of different economic concepts. The first is the issue of the supply curve. Shifts in the supply curves occur as the result of changes in price, or also in changes in demand. When the price of a good in the market changes, firms are likely to increase production. When the price of a good in the market decreases, some firm are likely to reduce or eliminate production. Also, technological improvements can serve to increase supply by making firms in the industry more efficient.
There are also shifts in the demand curve. Such shifts occur when there is a change in the price or a change in the supply. There can also be external shocks such as recession that affect the amount of demand in the economy. When the price of a good drops, this typically will cause demand to increase. When the price of a good…… [Read More]
The long-run price elasticity of demand for gasoline is stronger at 0.7 (Ibid). This implies that in the long-run, given higher gas prices, consumers will adjust their consumption habits. One example is that consumers will purchase more fuel efficient vehicles, thereby lowering their consumption level. Some consumers may switch to public transit. Young adults entering the workforce may eschew car ownership altogether in favor of other modes of transport. In the long run, businesses will also seek out alternatives for plastics, because those will rise in price as well.
The price elasticity of demand for oil may also exist on a curve. This means that the higher the price rises, the greater the price elasticity of demand will be. It may also change over time, as more consumers and businesses come to the realization that oil prices will not drop at any point in the future. At this point, there…… [Read More]
In order to understand the ways that different changes in the external environment will affect the demand for milk, some assumptions need to be made with respect to the milk market. e know that demand for milk will increase as wealth increases, which is the result of milk being something of a luxury item (Arnold, 2007). This means that there is some degree of correlation between wealth and milk consumption, and that implies that if wealth declines, milk consumption will also decline.
e also know that demand for milk is somewhat price inelastic. hen prices rise, people still pay them (Dohery, 2007). This is the result of two factors. The first is that there is a baseline demand for milk that is not going to be affected by price. The second is that the demand for milk is affected more by the wealth of the purchaser than the cost…… [Read More]
Marginal ate of Substitution (MS) is the rate that an individual is ready to give up from "good A" to obtain one or more unit of "good B" while keeping the overall utility constant. In other words, MS reveals how many units of good x that an individual is ready to give up to gain extra unit of good y while keeping the same level of utility constant. The MS involves the trade off of goods to change the allocation of the total bundles of goods while maintaining the level of satisfaction. Typically, MS is calculated between goods being placed on indifferent curve. The product of cheeseburger and hotdogs is used to illustrate the MS. If the marginal rate of substitution of cheeseburger for hot dogs is 2, thus, consumer will be willing to give 2 cheeseburger to obtain 1 extra hot dog.
However, marginal rate of substitution diminishes…… [Read More]
Demand and supply are the core concepts of economics and these are what determine the price of any given item. When demand of a certain item increases, it is usually followed by a corresponding increase in supply. And thus the price is affected. However there are times when demand increases more sharply than supply and this causes price to move up. In any case, price is directly dependent on supply and demand trends of a commodity. Price elasticity of demand refers to the economic condition when any change in price of a good and service generates some kind of response in its demand. When demand is affected by price, we know that quantity demanded is elastic. On the other hand when demand remains constant or change in price produces insignificant change in quantity demanded, we consider it a price inelastic situation. When a firm wants to change the price of…… [Read More]
The total supply of milk might remain the same, because the remaining high-efficiency producers are likely to be able to earn profits at this level of output. In the long-run, however, lower prices are going to sustain the quantity of milk demanded at higher than equilibrium levels, and the profits available to producers at lower than equilibrium levels. Producers, in their efforts to control costs, are going to reach a point of diminishing returns on those efforts. The result of this is that the market for milk will eventually become so distorted by the price ceiling that the government is forced to raise the price ceiling in order to ensure that there are producers remaining in the market. The government will have created a situation where to simply maintain the milk market requires active management.
2. There are several factors that contribute to the price elasticity of demand. One factor…… [Read More]
Competitor Product's Market
A short history of the organization and a description of their product
Hostess Brands, Inc. is a company set up in 1930 under the name Interstate Bakeries that later changed to Hostess Brands Inc. In November 2009. The company is located in the United States with its headquarters in Irving Texas. It has an operation centre in Kansas City, Missouri. The company works as a distributor and wholesale baker of snacks in the United States. It owns many brands such as Nature's Pride, Wonder Bread, Bakers Inn, Drake's and Dolly Madison. The company makes and sells cakes, loaves, snacks and rolls under different bakery brands (Smith, 2012).
These brands also make blue berry muffins, cheese Danishes, food cake donuts, honey buns and bear claws among others. Hostess gets revenue through selling of baked goods to mass marketers, supermarkets and stores in the U.S. The privately held bread…… [Read More]
Because passengers in those classes also receive larger seats, there is also some opportunity cost associated with those seats. There are simply fewer paying fares per square meter in those classes as a result of the larger seats. So to some extent, the price discrimination reflects both service and opportunity cost. However, the additional cost of serving these passengers is not as great as the differential in the ticket prices.
In addition, there is price discrimination in terms of when the ticket is purchased. Economy class and business class tickets cost more when purchased closer to the flight date. This reflects that buyers purchasing at the last minute are less likely to be price sensitive than buyers purchasing well in advance. Advance purchasers tend to be vacationers, who have a higher price elasticity of demand. Last minute purchasers tend to have low price elasticity of demand, as they need the…… [Read More]
Supply Demand Simulation
Macro and Microeconomic Principles
From the simulation, the two major microeconomic principles are supply and demand. The simulation majorly focuses on the supply and demand of rental properties in Atlantis. In addition, the influences on supply and demand form the major topic discussed in the simulation. The macroeconomic factors clearly stated in the simulation are changes in the population trend, choosing to rent or buy apartments and factors that directly influence these changes. Colander (2010), states that the quantity demanded always increases with falling prices and quantity supplied reduces with receding market prices (Colander, 2004). The company's supply is almost 2,000 apartments; the company speculates at reducing the vacancy rates to 15% to increase demand, a clear applicability of the demand law.
Demand and Supply Shifts
The availability of rental apartments, demand for rentals, number of potential renters and the pricing are the common factors that affect…… [Read More]
As the GM Case Study indicates, competition between the local brand and the foreign brand can give the local brand an edge especially when the foreign brand has more cost attached to it. GM, for example, was obliged to cut the costs of its cars in China because the national brands were gaining market share “by offering cheaper sport utility vehicles” (Bloomberg, 2015). In Kuwait, there is a lot of potential for local businesses to grow and edge out foreign competitors. In various fields, Kuwait is showing potential and innovation. It is behind only Saudi Arabia and Turkey in the number of scientific and technological patents produced (USPTO, 2015). Kuwait has emerged as a leader in Gulf Cooperation Council (GCC) countries in terms of innovation (“Kuwait sees fastest growth of GCC countries obtaining patents,” 2016). And as the Kuwait Times (2018) reports, “Kuwait has witnessed an extraordinary rise in…… [Read More]
Demand and Supply
There are a number of different factors that Edgar needs to take into consideration with his idea to invest in the gas station business. Let's pretend for a minute that he is not just paying the fair market value for the gas station -- he is -- and simply discuss his theory about the economics of the gas market. If the market for gas stations is even remotely efficient, the price of that gas station will be the present value of expected future cash flows, meaning that all of the knowledge about the determinants of the gas market are already priced into what Edgar is going to pay. His profit comes from the value that he can add to the station through his own management. But let us digress and get Edgar up to speed with what the market has already priced into that gas station.
There…… [Read More]
Ford Motor Company
Objective of this report is to use Ford Motor Company 2012 Second Quarter to carry out research on the company's production inventory levels, price and sales data and operational cost information.
Ford Motor Company (Ford) is one of the largest global automotive companies. The company manufactures and distributes automobile across six continents, and the company operates financing business through Ford Motor Credit Company. At the end of the 2011 fiscal year (FY2011), the company recorded total revenue of $136 billion, an increase of 5.7% over FY2010. Ford Motor also recorded the total net profit of $20 billion at the end of the 2011 fiscal years recording the increase of 4.3% over FY2010. The strength of Ford Motor lies with its strong brand that the company sells at premium price. Among its brands are Lincoln, and Ford which are among the strongest brand in the world. (Datamonitor, 2011).…… [Read More]
However the restaurants collectively are considered to be a luxury good to those within the market. We feel that our brand is a normal good in this market as our cuisine is specific to the taste of the clientele represented by the demographic. Additionally, our decor and quality distinguish our establishment from what are deemed to be the lower quality establishments in the area that would normally represent the 'competition'.
The additional features of our establishment also yield a luxury restaurant as the market deems the bathroom as an important feature in distinguishing a market friendly and luxurious restaurant experience. In many countries it is that way, the food itself does not distinguish the restaurant, as one can ostensibly obtain a great, world-class meal from many restaurants. Indeed, the restroom experience is what qualifies a restaurant as being luxurious or not luxurious.
The market structure that best characterizes the industry…… [Read More]
The demand for their services underwent a period of diminishment, because of the strong emotional impact that the events had upon the population living all over the world and especially in the United States of America. Despite various negative forecasts, the airline industry got back on track soon afterwards. Not only did the demand not fall, but it underwent significant increases.
Another element which could affect the functioning of the airline industry in a negative manner is represented by the concerns for the environment. Leaving aside the issue represented by the phonic pollution, aspects such as global warning may become an important concern for the airline industry should the issue gain a high importance on the public and political agendas. So far, however, the issue did not manage to influence people's choices regarding travelling by airplane, regardless of the attempts made in this directions by various politicians. (Pickard, 2006)
How…… [Read More]
Introduction to Situation
This paper is based on a fictional case study in which a young woman is considering becoming a physician. Prior to fully committing to this decision, she desires to attain prudent financial information about its repercussions. Specifically, she is seeking to identify the return on investment that her decision could potentially generate. This involves both qualitative and quantitative factors, the former of which pertains to personal gain derived from aiding people in a much needed professional setting. The latter relates to the finances she can generate from practicing medicine.
This financial data is stratified into a number of different categories corresponding to the market for doctors in terms of supply and demand, elasticity, production costs, pricing, and normal profit. These factors will help her to decide in which state it is beneficial to practice. The focus of this paper, then, is to identify how these factors relate…… [Read More]