Toyota Products, Services, and Prices

1088 Words5 Pages
Toyota Motor Corporation is one of the largest automakers in the world. At its annual conference in Tokyo on May 8, 2008, the company announced that activities through March 2008 generated a sales figure of $252.7 billion, a new record for the company. However, the company is lowering expectations for the coming year due to a stronger yen, a slowing American economy, and the rising cost of raw materials (Rowley, 2008). If Toyota is to continue increasing its revenue, it must examine its business practice and determine on a course of action to maximize its profit.

One method that Toyota can consider is using the price elasticity of demand to determine whether to increase or decrease the sale price of their automobiles. The responsiveness or sensitivity of consumers to a price change is measured by a product's price elasticity of demand (McConnell & Brue, 2004). Market goods can be described as elastic or inelastic goods as change in quantity demanded for that good. If demand is elastic, a decrease in price will increase total revenue. Even though a lower price would generate lower sales revenue per unit, more than enough additional units would be sold to offset lower price (McConnell & Brue, 2004). In a normal market condition, a price increase leads to a decreased demand, and a price decrease leads to increased demand. However, a change in income affecting demand is more complex.

Types of goods will help us determine whether demand for cars is elastic or inelastic. If a good is considered to be a luxury rather than a necessity, the greater is the price elasticity of demand (McConnell & Brue, 2004). Cars can be deemed as necessary due to a need for transportation. Other types of cars can be classified as luxury. A person who needs to be able to get from one place to another will have the need for a car. An old vehicle may suffice. In such a scenario, buying a brand new car is more likely to be a luxury rather than a necessity. If car prices go up, people are more inclined to just keep driving their old vehicles. In essence, the cars already on the road would serve as substitutes for new cars. However, over a longer period of time, old cars tend to wear out and the elasticity of demand for vehicles is less.

Toyota is known for its lineup of high gas mileage and low maintenance vehicles.

More about Toyota Products, Services, and Prices

Open Document