... For example, a boat has little value if there is no gasoline to run it. In the same respect, the gasoline would have little value if it just sat in a gas can waiting to be used. Many products complement each other but two that stand out are razors and shaving cream. Both items can be used separately but do a much more effective job when they are combined. Shaving cream helps consumers get a closer shave, moisturize skin, and reduce razor burn. Razors and shaving cream are complementary products because the price of razors has an inverse correlation with the demand for shaving cream. When the price of razors rises, the demand for shaving cream will decrease. Since the products are complements, this is known as cross elasticity. Cross elasticity occurs when the increased cost of one product...
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...KPA1113 Hani Norhidayah Ismail KBA 15022 Faculty of Industrial Management, UMP Prepared for, Mr. Mohd Hanafiah Ahmad Semester I 2015/2016 Table of content Company Summary: Starbucks Coffee 2 Elasticity 2 Price elasticity of demand 3 Cross-price elasticity of demand 5 Income elasticity of demand 6 References 7 Company Summary: Starbucks Coffee Their story began in 1971 where they were a roaster and retailer of whole bean and ground coffee, tea and spices with a single store in Seattle’s Pike Place Market. Today, they connect with millions of customers every day with brilliant products and more than 21,000 retail stores in 66 countries. Starbucks is named after the first mate in Herman Melville’s Moby Dick. Their logo is also inspired by the sea –featuring a twin-tailed siren from Greek mythology. Their mission is to inspire and nurture the human spirit – one person, one cup and one neighbourhood at a time. They believed in serving the best coffee possible. It's their goal for all of the coffee to be grown under the highest standards of quality, using ethical sourcing practices. Their coffee buyers personally travel to coffee farms in Latin America, Africa and Asia to select the highest quality beans (Starbucks, 2015). Elasticity Elasticity is defined as how much consumers and producers will respond to a change in market conditions. The concept can be applied to supply or demand, and it can be used to measure responses to a change in the price...
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...In order to assess whether raising tuition will increase or decrease revenue we need to determine what revenue is. Total revenue is the number of dollars that an organization receives from people who purchase its products or services (Amacher & Pate, 2013). The formula to compute total revenue is to multiply the price of each unit sold by the quantity of units sold. tr = p x q or total revenue = price x quantity In the case of the Nobody State University, p (price) is the tuition students pay and q (quantity) is how many students are enrolled yearly. If the total annual costs are held constant, a raise in the amount of tuition paid by every student will result in an increase, in total revenue. However, raising the tuition may not result in an increase because there may be a decrease in students enrolling which would result in a decrease in revenue. In cases where the total annual costs are not constant, increase in tuition will not necessarily result in a rise in the total revenue. There are many factors that determine the amount of revenue an organization will get. Costs (variable, fixed, and marginal costs) are factors that affect revenue (Khan Academy, n.d). For a school, the total cost is the money the school has to spend to teach the students. The balance determines whether revenue will increase or increase. An increase in the total annual revenue for the university happens under certain conditions. It will increase if the number of students enrolled increases...
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...Price elasticity of demand represents the change in the quantity demand and the change in its price. When calculating price elasticity of demand the following formula is used: Price Elasticity of Demand = % Change in Quantity demanded / % Change in Price (Investopedia). It is also important to consider the fact that “a small change in price is accompanied by a large change in quantity demanded, the product is said to be elastic (or responsive to price changes) (Investopedia)”. Considering our competitor RedBull we must understand that in order to stand out we must come up with a better price than our competitor, or better yet create a promotional offer “buy one get one free” for a limited period of time and be priced just as our competitor. In terms of technological innovation that it can be an issue, since we know an innovation has been implemented when the first energy drink was introduced to our market. Since we know when bringing to the market a new product most of the capital must go into marketing and promotional items exclusive to the new product, being conservative in the number of employees and ask some of the employees to execute multiple tasks in the company could save money on the capital employed and still complete the job and the amount of labor as scheduled. The 'Law of Diminishing Marginal Productivity' is “an economic principle that states that while increasing one input and keeping other inputs at the same level may initially increase output, further increases...
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...Readings 4 1. Define own price or demand elasticity and give the equation and the number that is used for comparison. Own price or demand elasticity comes from measuring the percentage change in the quantity demanded by the percentage change in the price of the good. The example from the reading is: If the price increases from $2,000 to $2,200, then the percentage increase in the price is the change ($2,200 - $2,000) divided by the original amount ($2,000) multiplied by 100 or a 10 percent increase. 2. Explain each of the following own price elasticities and their relationship with total revenue if price is increased or decreased. Give two examples of each: http://www.mackinac.org/1247 * Elastic When consumers are relatively responsive to a price change Examples: automobiles (short-run), foreign travel (long-run), restaurant meals * Inelastic When the change in qty demanded is relatively small in response to a price change Examples: physician services, coffee, taxi (long-run) * Unit elastic When the percentage change in quantity demanded is equal to the percentage change in price Examples: movies, housing (owner occupied, long-run), private education 3. Explain the advantages of using the mid-point formula. From what I could determine on the graphs, the mid-point formula helps to determine at a glance the mid point, or the unit elastic. The arc or mid-point formula also helps to determine the average. Using the average...
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...Subject: Elasticity Date: May 1, 2013 Business Brief Opening The article The Double Jeopardy of Sales Promotions assesses market influences that have steered US marketers to increase sales capacities and increase market share through the use of sales promotions (Jones, 1990). This concept was based on theme advertising. Many firms during this time lacked foresight of the expense and the earnings that were forgone while attempting to increase short-term cost. It has been argued that long term promotions reduces future sales by 'bringing forward' sales, and diminishing of the brand. They also promote competitive retaliation; and cheapen the image of the brand in the customer's eyes. Promotions can never improve a brand image or help the stability of the consumer (Jones, 1990). This process actually pushes the firm into a nasty cycle of promotion, commotion, and then demotion. According to the article by using mathematical techniques companies are able to maximize the efficiency of their marketing plan (Jones, 1990). Analysis Knowing Price Elasticity of Demand (PED) helps the company opt whether to raise or lower price, or whether to price differentiate. Price differentiate is when the company charges the consumer different prices for the same product (Jones, 1990). According to Boyes, a good with price elasticity stronger than negative one is said to be "elastic;" goods with price elasticity’s closer to zero are said to be "inelastic" (Boyes, 2008). Goods that are...
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...Elasticity Elasticity is a central concept in economics discussed frequently in weeks one and two, and figures to play a prominent role in economic discussions throughout the course. In economics, elasticity describes a product or good’s demand with respect to its price set by the supplier. An elastic product is a product whose consumer demand is dependent on the price of the product. An example would be, as the price of lawn care increases, the overall demand from the consumer base that uses those services would decrease. Conversely, an in-elastic good is one whose demand is not greatly affected by a change in its price. Cigarettes and alcohol are perfect examples of in-elastic products. As prices and taxes continue to increase on these products, the general consumer demand continues to remain the same. The economic expression to determine whether a product is elastic or in-elastic is ⋮%ΔD%ΔP⋮. That is, the Price Elasticity of Demand is the absolute value of the percentage change in consumer demand divided by the percentage change in consumer pricing. A good is said to be elastic if the price elasticity of demand is greater than one. Elasticity is a rather simple and straight forward concept when looking at a product in a specific time period. Gasoline is a product is a said to be in-elastic due to consumer demand and dependence on it. That is, if you were to look at a price/demand graph of gasoline during a 6 month period of time, it would...
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...Topic 2: Elasticity One motivation for studying elasticity is so that firms will know how their revenue might change in response to various price changes. Certainly firms are interested in setting prices in such a way to increase their revenue. Let total revenue be price multiplied by quantity (TR = P . Q). Consider the following demand curves. If we raised the price, would total revenue increase or decrease? Price INELASTIC (like the letter I) Demand Quantity Price ELASTIC (like the letter E) Demand Quantity By “eyeballing” the graphs, it appears that in the first instance, increasing price would raise revenue. In the second graph, a price increase would probably decrease total revenue. This is because the demand curve in the first graph represents a relatively price-insensitive demand, and this demand curve is consequently relatively inelastic. In the second graph, the curve represents a relatively price-sensitive demand, and this demand curve is consequently relatively elastic. This is summarized in the following table: Price Change | Elasticity | Change in Total Revenue | Price Increase | Inelastic | Total Revenue Increases | Price Increase | Elastic | Total Revenue Decreases | Price Decrease | Inelastic | Total Revenue Decreases | Price Decrease | Elastic | Total Revenue Increases | Thus, elasticity has to do with price sensitivity. An elastic demand indicates extreme price sensitivity...
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...of the substitutes increases we would expect to see purchases increase for the other substitute. In the case of complements as the price rises in one we would expect to see the purchases decrease for both. A3. Income elasticity is the measure of the rate of response of quantity demand due to an increase or decrease in a consumer’s income. For most goods an increase in income creates an increase in demand for items that are considered an indulgence, like name brand clothes, new cars and electronic equipment. Equally the demand for these goods decreases if income decreases. These goods whose demands vary based on income are called superior or normal goods. Most products are considered normal goods, however there are exceptions. When incomes increase to a certain point the demand for used or less popular items like second hand clothes and used cars decreases. These goods that vary inversely with money income are called inferior goods. B. The coefficient for elasticity of demand measures the relationship between two variables. The formula used is percentage in change of quantity /percentage change in price. Q/P. if the numerator is less than the denominator then the coefficient would be 1 making it elastic. The coefficient for cross price elasticity measures the percent of change in quantity of demand when a price change occurs in either substitutes or compliments. In the case of a substitute when the price goes up let’s say in broccoli. The demand for green beans...
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...WGU| Elasticity of Demand| Discussing the Main Points| | Carla McJunkin| 12/20/2013| | Part A Elasticity of demand is a measure of variables reaction to change given in certain other variables. It may describe the extent of which goods or services change with supply or demand as well as possible consumer income (Investopedia). There are several different categories of elasticity of demand. There are products that are defined as elastic, inelastic and unitary. In order to find the curves of supply and demand of elasticity the following equation is used: Elasticity = (% change in quantity demanded / % change in price) There are also a few rules I should mention that are to be followed when figuring the elasticity of demand; the threshold number is always one, there are no negative numbers (absolute values only) and categories of elasticity only. An elastic product is one that has a price of elasticity demand of more than one (1+). An inelastic product is defined when the elasticity of demand is less than one (-1). An inelastic product is a product where in spite of price changes, consumers continue to purchase. A unitary product occurs when the price elasticity of demand[->0] is one (1). Let us assume a demand is unitary (elastic), and that there is a sudden decrease in price of 5% and we can assume that the percentage of change in quantity will increase by 5%., by reason of getting to the unitary number of one. .In other words, the change in quantity...
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...1. You will need to thoroughly explain elasticity. You are expected to cover issues such as: a. What is it? Elasticity is how the demand or supply curve’s change to a change in the product. Whether it be price, quantity or another factor in the market. There are different elasticity calculations that can be used. Price elasticity of demand is the % change in quantity demanded / % change in price. Price elasticity of supply is the % change in quantity supplied / % change in price. Income elasticity of demand is the % change in demand of a product / % change in the consumer’s income. You are also able to calculate the change in price if a good that is related to your product using the cross-price elasticity of demand. This calculation is % change in demand of your product / % change in the price of a related good. b. Why is it used and why is it important? The elasticity calculations are used to see how your product’s demand reacts to changes in the market. It allows you to analyze your place in the market and lets you make business decisions for what price you want to charge for your product to how much of your product you want to be on the self. Understanding these calculations will help your business succeed. Scenario 2. The current price, paid by businesses, for your widget is $3.00. The current quantity you sell to various businesses is 150,000 per month. You decide to cut the price of your widget from $3.00 to $2.70. You expect that the quantity you...
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...As consumers, there is a wide variety of products that we buy daily to satisfy our wants and needs, but we don’t give much thought to how those products coincide with one another or if they even do. Some products that we can either be labeled as a substitute product or as a complimenting product. Various products that we purchase can automatically up the demand for another product ultimately making it a compliment product. If we were to use a graph to see the results of complementing products we would quickly learn that if there is an increase in products A and the complimenting product B would follow suite thereafter with an increase. If we was to purchase a vacuum cleaner that required a bag, we would also need to purchase the vacuum bags. These two products complement each other as you need both of the vacuum and bag for the merchandise to work, yet both are sold separately. Some people may purchase a muffin and coffee and consider both food items as a complement to each other. A larger scale example would be automobiles. When we purchase an automobile, we are under the understanding that we will have to purchase some type of fuel for this product. Most automobiles do not hold an unlimited amount of gas making it necessary to purchase fuel. The rise and demand for automobiles have also increased the demand for gasoline. If we consider a world with no automobiles where we all rode on bicycles there would not be a high demand for gasoline. Cars and gasoline would...
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...A. 1. Elasticity of demand: According to McConnell, Elasticity of demand is the degree to which changes in prices and incomes affect the supply and demand,” (p 76). In other words elasticity tells us how much a price change effects sales or demand of a product. Elasticity can be measured and referred to as: elastic, unit elastic or inelastic. Elasticity of demand is measured: Ed=percentage change in quantity demanded of productpercentage change in price of product If the result is a coefficient greater than one the product price is elastic, if the result is equal to one it is considered unit elastic, and if the coefficient is less than one it is inelastic. 2. Cross-price elasticity: Cross-price elasticity refers to the elasticity of a product when there is a substitute, or compliment product to be considered. According to McConnell, (2012) “The cross elasticity of demand measures how sensitive consumer purchases of one product (say, X) are to a change in the price of some other product (say, Y). “ A substitute product is a product that can be used in place of the original product, at the consumer’s discretion. A compliment is a separate product that is generally purchased to be used with the original product, like peanut butter and jelly. E xy =percentage change in quantity demanded of product xpercentage change in price of product y If the coefficient results are more than zero, the product is considered a substitute product. If the result...
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...concepts of price elasticity of demand and elasticity of supply to explore and explain the large fluctuations in the retail price of gasoline over the last 3 years. Use price elasticity concepts to explore the accompanying closure of many gasoline retailers. Also, discuss the impact of cross-elasticity of demand. According to various literatures petroleum is the single largest source of energy used in the United States. It is said that the USA uses two times more petroleum than either coal or natural gas and four times more than nuclear power or renewable energy sources. However, before petroleum can be used it is sent to a refinery where it is physically, thermally, and chemically separated into fractions and then converted into finished products such as the gasoline that is purchases at the pumps. Fluctuations in the average gasoline prices has been caused for concerns, this paper will attempt to look at this through the economic concepts of price elasticity of demand and supply to explain the fluctuation in gasoline retail prices in the USA over the past three years. Price elasticity of demand measures the degree to which unit sales of a product or service are affected by change in price. The demand for a product is said to be in-elastic if a change in price has little effect on the number of units sold. On the other hand demand is said to be elastic if a small change in price has a substantial effect on the number of unit sold. The price elasticity of supply is used...
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...Assignment 2: Utility, Elasticity, and Demand Microeconomics 202 I have been placed in charge of a product campaign for a new shampoo, Blue Hawaiian. The objective will be to create and produce a product that competes with the economy brand shampoos currently in the marketplace. The ultimate goal of the campaign will be market penetration and distribution in major retailers including Walmart, Target, Kroger, Costco, and Albertsons/Safeway to name a few. In order to initially gain distribution we will have to utilize a saes team to get appointments with the buyers of the retailers we wish to target and present our new line. To secure new distribution funds will be allocated to ensure warehouse slotting. The initial distribution push will be rolled into the marketing and production costs of Blue Hawaiian shampoo’s launch. Blue Hawaiian will have different SKU’s with Hawaiian influence; Coconut, Pineapple, Mango, and Island Breeze. Pricing will be competitive with popular brands such as Suave, Dove, Pantene, and Neutrogena. (top10for.com). The target retail will be $3.99 at retailers such as Kroger and Albertson/Safeway, $3.19 at Walmart and Target, and $5.79 for a club pack at Costco. The target production cost will be .99 a unit for the singles, and $1.98 for the club pack. Various forms of marketing will be used in the launch of Blue Hawaiian shampoo. Television, print, and social media will be the primary sources of marketing...
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