Price elasticity is defined in our text as the change in relationship between a change in the quantity demanded and price. When price elasticity is greater than 1, it’s considered “somewhat elastic” so that when the price increases the revenue decreases. This is due to the quantity being changed so significantly it results in a lost in revenue. In a short period of time, this elasticity may not be detrimental but a wide market change could drive away customers and hurt the company. Cross price elasticity is a measure of changes in quantity demands. This determines the affects the demand for a product in relation to its substitutes. The elasticity for the cross price is at 0.68. The cross price represents the effects of the quantity demanded of one good to a change in price of another good. This elasticity is positive, as its substitutes price rise the demand for the other rises. The income elasticity measures the effect of quantity due to a change in the income of the consumers. With an elasticity of 1.62, the company will see increasing demands as long as the incomes of consumers increase, moderately elastic. At this rate any 1% rise in incomes of the consumer base brings about a 1.62% in demand. Company could potentially could raise the product price if there’s a spark in consumer income. Advertisement elasticity is at 0.11, implying that an increase in 1% in advertisement expenses will only result in a 0.11% increase in sales. Being this increase is relatively small it’s considered inelastic and advertising increases for this company may not be reflected as beneficial to its sales. In both the short and long term, the company should monitor advertising costs closely and look into free marking outlets to result in increased sal...
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... and the diversification of products.
5. Indicate the crucial factors that could cause rightward shifts and leftward shifts of the demand and supply curves.
Right-ward shift in demand curves could be attributed to various factors such as rise in consumer income and decrease in product price of the complementary products. Left-ward shift in the demand curves could be attributed different factors like a decrease in consumer income and rising inflation. Alternatively, an increase in price of the complementary products can have the same effect.
Right-ward shift in supply curves could be attributed to different factors such as cheap labor, advanced technology and reduced taxation leading to reduced production costs and abundance of raw materials. Left-ward shift could be related to increase in wages, high interest rates and scarcity of resources or raw material.
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