Discussion 1: Elasticity of Demand and Supply
Select a product you use on a daily basis and discuss the determinants of price elasticity of demand for that product. Provide specific examples of characteristics of your chosen good to support your response
It is for certain that most buyers are likely to react strongly when the price of some commodities fluctuate. Among such commodities are the smartphones. Well, over the past few years, there has been a tremendous increase not only in the sales of the smartphones but also the companies’ that have ventured into manufacturing these gadgets. Each of these companies wants to dominate the market amid facing a stiff competition, and their demand elasticity is largely affected by their competitors
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Provide at least two reasons why one would experience diminishing marginal utility for your example
In the diminishing marginal utility law, the value of a given product continues to decrease significantly as the product is being consumed. The diminishing utility can greatly be affected by overproduction where producers tend to produce certain products in bulk whereas the consumers only need a few of these products. This destabilizes the demand supply chain curves and often results in undesignated losses emanating from storage of inventories. Diminishing marginal utility often results due to satisfaction and price. If one took the first bar of chocolate, they certainly would feel good but upon taking another bar, they are likely to feel irritated and in some instances the consumers do not want to spend a lot meaning that they are bound to make more purchases of the same product.
Create a (very) brief, original scenario using two to three products of your choice that illustrates how consumer choice affects the demand of a
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This is because they’re the end users, and producers aim at supplying them with goods and services that they have demanded. Let’s consider two items that are commonly used by consumers; food and clothing. These two commodities are largely dependent on the consumer’s choice. This means that a consumer can prefer a certain commodity to the other. Their choice will create a high demand in the market for that specific good, and this will consequently prompt the manufacturer to produce more to keep the balance. During the winter season, the consumers will demand heavy clothing to shield themselves from the freezing weather, apparel industries bridge the gap between supply and demand by producing heavy woolen sweaters and canvas for the people (Gorton,
A local supermarket would like to introduce its own brand of paper goods to sell alongside its current inventory. The company has hired you to generate a report outlining the advantages and disadvantages of doing so. Write report.
The figure 4 shows the demand curve for a good with numerous close alternatives in consumption such as soft drinks or colas. To calculate the price elasticity of demand, first analyze the result when the price of a six-pack of sodas moves from $2 to $2.20, a 10% increase in price. However, the quantity demanded falls from 1,000 to 850, a 15% decrease in the quantity demanded. The price elasticity of demand of 1.5 measured here ensures that for every 1% change in the price of cola, quantity demand changes by 1.5% and it is clearly a relatively elastic
Commercial firms use Price Elasticity to manage pricing and production decisions, especially in industries where the growth in sales and revenues are the primary measure of a firm’s success. Knowledge of the Price Elasticity for a product or service enables managers to determine the pricing strategy required to get the sales results desired. For example, a firm with a product with a relatively high elasticity would know that a large sales increase can be created with a small price decrease. Conversely, a firm with an inelastic product knows that changes in pricing would have minimal effect on sales.
1. Identify 5 characteristics that consumers look for in modern fast-moving consumer food goods. Compare the characteristics you identify with those identified by someone else in your class.
Oil is a common example, as extracting oil is quit expensive. But this is another way prices allocate scarce resources. When the price of oil falls low-yield oil wells are closed down, because the cost of extracting oil from the well would exceed the price the oil would sell for. If the price later rose or more efficient ways of extracting oil was discovered the wells would then be re-opened. This has been the case for many oil wells in Venezuela and Canada.
The success of these products against each other has to be predicted using the newspaper articles provided. The demand and sales estimates of these products along with the customer perception of the product needs to be projected and ranked between each product.
Price elasticity of demand is the measure of how responsive the demand for the product is
To understand the Price Elasticity of Coca Cola, we need to discuss some of the general categories of demand:
Every company wants to understand why people decide to buy its products or others. Firstly, we have to understand why people buy certain kind of product. People buy products because they need them. A need is activated and felt when there is a sufficient discrepancy between a desired or preferred state of being and the actual state. (Engle£¬Blackwell and Miniard. 1995. p407 ) For example, when you feel hungry, what you needs is some food. It is very important for marketer to understand the needs of consumers. All the consumers may have the same needs, but the ways which they satisfy what they need are different. Here is a example, Chinese people would choose rice when they feel hungry, whilst British people may choose bread to satisfy their needs.
A product or service is considered highly elastic if a minor change in its price results to a significant change in the quantity demanded or supplied. Meanwhile, an inelastic good or service is one in which price changes don’t alter or slightly alter the supply and demand levels. To determine the elasticity of supply and demand, the simple equation is used:
(b) Crest toothpaste: This particular product is a little harder to decide if the price elasticity of demand is elastic or inelastic. It’s difficult to choose either option because there tends to be high competition when it comes to teeth products, but there aren’t many substitutes to toothpaste. Ultimately, I believe this product is inelastic because if the price goes up, the demand shouldn’t go down because toothpaste is essentially considered a need in our society. Almost everyone in our society brushes their teeth everyday and that will be impossible to do efficiently without the use of toothpaste.
It is affected by factors such as availability of substitutes. In beverage industry, the market is flooded with substitutes. In this case, if Coca Cola increases their prices, the consumers shift to substitutes such as aerated drinks implying that the elasticity of demand is elastic and greater than 1. Time also affects the elasticity of demand of Coca Cola such that if it is long, the consumers will take a long time to shift to substitutes and it will be elastic. However if the change in prices is too short, the elasticity of demand will be inelastic. The elasticity of demand in consumers affects the purchasing power whereby; an increase in price exerts pressure on the consumer’s
... Also important is the price of complements, or goods that are used together. When the price of gasoline rises, the demand for cars falls.
1. A. Price elasticity of demand is a measure of the degree of responsiveness or sensitive of consumers to a change in price. The first determinant of price elasticity of demand is substituted for the product, which is the more substitutes, the more elastic the demand. Another determinant of price elasticity of demand is the proportion of price relative to income, generally the larger the expenditure relative to one’s budget, the more elastic the
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