Elasticity Of Demand
Introduction:
Price elasticity of demand refers to the degree of sensitivity of the quantity demanded to a change in its price while all other factors affecting demand remain constant.
In his book "Economics for C.A. Professional Education Course 1 – Page 113", Sampat Mukherjee stated that the concept of elasticity of demand was introduced by Alfred Marshall in 1890 to measure the market sensitivity of demand.
To determine the price elasticity of demand we compare the percentage change in the quantity demanded with the percentage change in price.
For example; in 2012 at Panagora Marketing Co Ltd, a rise in the price of fresh chicken by 20% causes the quantity demanded for the month of June to contract 500 tonnes to 400 tonnes.
Source:
…show more content…
The more narrowly defined the good, the more substitutes there are for it, and usually, the more elastic its demand will be.
Source: Microeconomics the Easy Way by Walter J. Wessels (1997 – Page 51)
A typical example in Mauritius will be a rise in the price of Coca-Cola (Diagram 4).
A rise in the price of Coca-Cola will lead to decrease in the quantity demanded and at the same time it will cause a shift of the whole demand curve for its substitute like Pepsi-Cola; leading to an increase in the demand for Pepsi-Cola.
The length of the period under consideration.._
One important determinant of elasticity of demand is time. Elasticity of demand varies directly with the period of time.
If you give people more time to adjust their behaviour, they will be able to make larger
…show more content…
Price of Coffee.
2. Consumer behaviour and preferences.
3. Income level.
4. Time frame.
Price.
"Prices are the tool by which the market coordinates individuals’ desires and limits how much people are willing to buy—what quantity they demand." (David C. Colander - 1998)
The price of coffee itself can affect the coffee market. Supposed the government imposes taxes and tariffs on coffee. Instantly the price of this commodity will rise, causing a decrease in the demand for coffee on the market. Consumers will shift to other products like tea which is a close substitute of coffee.
Consumer behaviour and preferences.
Nowadays people prefer to adopt a healthy lifestyle and have selected. Expectation of the consumers on coffee may influence the market if they are influence by external factors related to bad effects of the commodity. Given that consumers have the possibility of choosing their preferences and, we may face a decrease in the consumption of coffee.
Habits:
It may happen that coffee becomes a necessity for the consumer due to his habits and he continues to purchase it even if its price
Rockefeller Monopolies Analysis
281 Words | 2 PagesOnce their supply is limited the public have to pay the higher costs because that specific product is not available anywhere else. Trusts and Monopolies cause for higher prices because of the limited availability. I believe
A History Of The World In 6 Glasses Essay
905 Words | 4 PagesWhile coffee faced many objections, no one was able to stop its reign and popularity growth through the western world. Not King Charles II (who believed conspirators and traitors gathered in coffeehouses). Not the people who were prejudice to Arabic people (who feared coffee due to its close association with Arabians), Or even the Great Fire of London (which burned down most coffeehouses in London in
Summary Of Java Man By Malcolm Gladwell
905 Words | 4 PagesArticle Response: Java Man Malcolm Gladwell presents a description of the progression of caffeine, particularly in the Western culture in order to show the impact of caffeine in the world. Through initiating and presenting a description of the operation of Coca-Cola, Gladwell proceeds to capture the attention of the reader since most readers are familiar with the product. Moreover, Gladwell proceeds to dismiss the commercial artist referred to as Haddon Sundblom, including the scheme that was employed to enhance the popularity of Coke through the creation of caffeine for children. It is imperative to note that this initiative enhanced the popularity of Coke and made it a household beverage.
Case Study Of American Airlines Pricing Strategy
806 Words | 4 PagesINTRODUCTION “The moment you make a mistake in pricing, you 're eating into your reputation or your profits.” - Katharine Paine The above quote from the founder of KDPaine & Partners LLC and The Delahaye Group is quite apt. Pricing is quite often ignored by executives & leads to people not understanding how it can change the competitive game in an industry.
Toyota General Environment Analysis
1506 Words | 7 PagesPrice and demand of an item is significant viewpoint which must be considered by Toyota in promoting economy as price and demand impact purchaser what to purchase. Customer’s demands all the more in lower price and less at higher price. Price elasticity of demand is a measure of the greatness by which customers modify the amount of some item that they buy in light of progress in the price of that item Boyes and Melvin (2012). Price elasticity of demand will help Toyota to decide the amount an
Coca Cola Demand Curve
1041 Words | 5 PagesSupply is defined as the quantity a producer will supply at a given price. A supply curve shows the relationship between the price and the quantity supplied. The law of supply says that “ as price of a good increases the quantity supplied increases”. There is a positive relationship between the price and quantity
Macroeconomic Factors Affecting Starbucks
707 Words | 3 PagesAlso impacting per capita coffee consumption, another industry driver. • Consumers switching to competing lower priced substitutes or
Pricing Strategy And The Pricing Strategy: Dyson
1009 Words | 5 Pages4.4 Pricing Strategy For a number of reasons, price is one of the most important aspects of an effective marketing strategy (Gerstein & Friedman, 2015). First, price is the only marketing variable that generates revenue. Second, buyers see price as an attribute of value (Tanner & Raymond, n.d.). Consequently, an organization must carefully assess its internal and external environment to choose the most effective pricing objective, which—in turn—will drive a product’s initial pricing strategy.
Persuasive Essay: The Benefits Of Drinking Coffee
742 Words | 3 PagesCoffee is one of the most popular drinks in the world. In fact, it is estimated that every year, more than 400 billion cups of coffee are consumed all across the world. For many, it is the choice of drink early in the morning before work while for others it is the drink of choice when they want to burn the midnight oil. Well, whatever the case, there are many benefits in drinking coffee and some are quite shocking and unexpected too! 1.
Coke And Pepsi Case Study
1101 Words | 5 PagesIn the carbonated soft drinks industry, Coke Cola and Pepsi Co are the biggest players in the market for aerated beverages. Both the companies have been competing strongly against each other for decades. The market is dominated by these two industry leaders with a total market share of 72%; Coke’s market share is 42% and Pepsi’s 30%. This is known as an oligopoly market; where there are few large firms competing with each other in the industry. Since both the company’s market share so large, the market is very close to a duopoly (other players having a very small impact on the market).
Starbucks Target Audience Analysis
1087 Words | 5 PagesSecondly, the geographic location of Starbucks’ target audience is the urban city of Malaysia, where Starbucks outlets are often regarded as the third location besides their home and workplace for urban professionals to work or to spend some downtime alone or with their peers. Teenagers would spend time at Starbucks as well for meet-ups with friends and as a place to study. Thirdly, there are several psychographic and consumer insights involved.
Marketing: Marketing Mix In The Ice Cream Industry
1497 Words | 6 Pages6.1.2 Price Price is the value or amount that customer pays to buy a product. For instance, for our Star Lab ice cream shop, we need to consider the cost of production of our ice cream, price of our main competitor and our potential customers demographics in order to succeed this competitive market. (C. Breidert, 2007, p.9) 6.1.2.1 Pricing Strategy Pricing strategy that can be used by our company such as penetration pricing, cost-plus pricing, value based pricing and more. But we think that market penetration pricing is the best pricing strategy to be used by our business.
Porter's Five Forces Analysis: Calm Coffee
707 Words | 3 PagesIn this section, we use the Porter’s 5 forces model to evaluate the attraction of the industry when focus on the following 5 forces, Calm coffee faces the impact of the 5 forces, as outlined in Porter’s model. These five forces have different intensity or advantage based on Calm coffee position, as follows: This part of the 5 Forces analysis shows that competition is one of the most important of Calm Coffee need to concern. The businesses have many competitors, which have different sizes, specialties and strategies. For example, Calm faces the competitive force of McDonald’s and Starbucks, as well as other specialty coffeehouse. The strong force of competition is also because of the low switching cost, which means that the customers can easy
Oligopoly Case Study
1870 Words | 8 PagesThis is also where price mechanism takes place because any changes in demand and supply, will affect the price, and eventually balancing the demand to be equal to supply. This is the reason why consumers and producers have no control over the price, and in this situation, everyone is considered as price takers. This causes a horizontal line in the demand curve for the firm’s product(s), as can be seen in Figure 1 (b). Figure 1 There are barely any barriers to enter this market, making it easy to enter and exit according to the firm’s capabilities.
More about Elasticity Of Demand
Rockefeller Monopolies Analysis
281 Words | 2 PagesA History Of The World In 6 Glasses Essay
905 Words | 4 PagesDbq Essay On The Enlightenment
1801 Words | 8 PagesSummary Of Java Man By Malcolm Gladwell
905 Words | 4 PagesCase Study Of American Airlines Pricing Strategy
806 Words | 4 PagesToyota General Environment Analysis
1506 Words | 7 PagesCoca Cola Demand Curve
1041 Words | 5 PagesMacroeconomic Factors Affecting Starbucks
707 Words | 3 PagesPricing Strategy And The Pricing Strategy: Dyson
1009 Words | 5 PagesPersuasive Essay: The Benefits Of Drinking Coffee
742 Words | 3 PagesCoke And Pepsi Case Study
1101 Words | 5 PagesStarbucks Target Audience Analysis
1087 Words | 5 PagesMarketing: Marketing Mix In The Ice Cream Industry
1497 Words | 6 PagesPorter's Five Forces Analysis: Calm Coffee
707 Words | 3 PagesOligopoly Case Study
1870 Words | 8 Pages