Coca Cola Price Elasticity Of Demand Analysis

analytical Essay
1580 words
1580 words

Price Elasticity of Demand According to Microeconomics, Price Elasticity of Demand is the responsiveness of the quantity demanded to a change in price, measured by dividing the percentage change in the quantity demanded of a product by the percentage change in the product’s price (Hubbard & O’Brien, 2015). Demand is considered elastic when the quantity demanded for a product increases or decreases in response to price change. Normally, sales increase with price drops and decrease when prices rise. Coca Cola products are considered to have an elastic demand because quantity demanded for its products often change when prices change. If the price of Coke goes from $1.50 a bottle to $2.00 and the price of a 20 oz. Pepsi remains at or around $1.50 …show more content…

When demand is elastic as with Coca Cola products price changes affect total revenue. When the price increases revenue decreases and when the price decreases revenue increases. For Coca Cola if they notice a decrease in revenue they would offer products at a discount to increase revenue. They do this quite often with sales such buy 2 20 oz. bottles for $3 instead of the normal $1.89 each price …show more content…

These costs are usually categorized into variable costs and fixed costs. Variable costs are costs that vary depending on production output. Some examples of variable costs that Coca Cola incurs include labor, raw materials, packaging, and transportation and deliver costs. Raw materials are a major variable cost for Coca Cola. When production increases more materials are needed to product more products, therefore the cost for raw materials increases. The main raw material in all Coca Cola products is sugar which includes high fructose corn syrup, sucrose, and sugarcane. The availability of these natural resources often depends on weather conditions, making for fluctuations in market prices. Another example of raw material costs is the cost of materials used to bottle their products. This includes according to Coca Cola’s annual report, PET resin, preforms and bottles, glass and aluminum bottles, aluminum and steel cans, plastic closures, aseptic fiber packaging, labels, cartons; cases, post-mix packaging, and carbon dioxide. (Kent & Waller, 2016). Fixed cost are costs that remain constant regardless of production output. Some examples of fixed cost that Coca Cola incur includes rent expenses for their bottling plants, salary for thousands of employees, the cost to upkeep their plants and equipment, insurance, and advertising expenses. Advertising is a big production cost for Coca Cola that does not change when output

In this essay, the author

  • Explains that price elasticity of demand is the responsiveness of the quantity demanded to a change in price. coca cola products are considered to have an elastic demand.
  • Explains the determinants of price elasticity of demand, such as availability of close substitutes, passage of time, definition of market, and share of the good in the consumer's budget.
  • Analyzes how the price elasticity of demand impacts pricing decisions. when demand is elastic, price changes affect total revenue.
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