Evaluation of Demand Elasticity

Evaluation of Demand Elasticity

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Introduction

Evaluation of price elasticity in a market set up is used to show the entire relationship of the price and the quantity which is demanded set of time. The effect of elasticity is used to determine the precise calculation that may be experienced in event the price of the commodity changes. Therefore, price elasticity of demand can be determined in percentage indicating the overall change of quantity demanded as result of price change in accordance to the prevailing market conditions. There are numerous factors which contribute to overall change of price elasticity of demand including price adjustment, product durability, time adjustment and existence of substitute goods which are available to the customer in the market. Specifically, any form of business management should be able to examine the dynamics of price changes that influence any form of elasticity that result to change of quantity of commodity that may be required at any condition (Solis, 2012).

Under the normal operation of the business change in demand may occur once there is price change and considered deviation between the new price indicated with and consumer preference to consume commodity that are provided in the market. Consumer reference to price adjustment occurs over time and their impacts are changing of commodity that may be demanded in that time and under prevailing economic conditions. The reflection of price changes remains dependence on the quantity that may be demanded which translates to creation of price elasticity at long-run operation of the business. The rate of price changes therefore, should be investigated thoroughly before determining the dynamism of the business that will be set in any prevailing market conditions (Feinberg & United States, 2008).

The paper will evaluate and discuss the impact of price change about quantity demanded, the impacts of substitute products in the market, role of competition to change of price and quantity demanded and the overall price elasticity of demand.

Price Elasticity of Demand

If the quantity demanded of a product exhibits a large change in response to its price change, it is termed “elastic,” that is, quantity stretched far from its prior point. If the quantity purchased has a small change in response to its price, it is termed “inelastic”; quantity didn’t stretch much from its prior point. It should be noted that the more the consumer will be able to access the substitute products in the market will translate the other commodity increasing in the overall price compared to previous cost the consumers incurred to obtain such commodity. In event the prices will tend to increase more compared to other products in the market the substitute product tends to experience comprehensive elasticity of prices and vice-versa becomes true. The products that may experience inelasticity change of prices in most cases are luxurious in nature where their contribution remains insignificant to the life of the consumers (Solis, 2012).

It should be noted that time has been considered to respond different from thus have little impact or no impact to change of prices of commodity thus the overall quantity that may be demanded. For instance, if the quantity that purchased in a time change in the range of 10% – 5% the product economically is elastic in nature, thus if the price changes within the range of 10% the product will be considered to experience unitary price elasticity. If the quantity of the product which is being purchased experiences change which is less than 5% to 10% the product becomes economically inelastic in nature.

The elasticity demand in change of price is very crucial in any form of business operation in the modern world. The positivity of substitute good is that in the event the demand of one commodity increase and there is price change the other commodity price will tend to increase effectively. In other cases, consumers will tend to switch to less expensive alternative to satisfy own wants and need. The diagram below illustrates the change of price and quantity demand change (Taylor & Teaching Company, 2008).

D

Prices

P2

P1D

Q1 Q2

Quantity demanded

D

P2

P1

D

Q1 Q2

Quantity demanded

In diagram one above indicates the closeness of the main commodity to substitute good which is provided by different business organization. Small rise of the price will cause large rise of the commodity demanded. In diagram two above: large rise of price will tend to small quantity of products being demanded by customers in the market.

Relative Product Comparison

Macy’s over the past decades have been offering customers with comprehensive opportunity to purchase their products for own use or merchandising. Moreover, they are provided with equal opportunity and chance of choosing the best items in the market regarding their specification with overall intention of satisfying their clients in the market. By doing so they can make more sales and increase the total revenue margin because of profits being generated. Their focus has remained to meet expectations of shopper experience and provide adequate details on the product they are dealing with. Therefore, the table below illustrates comprehensive price comparison in relation to the substitute products which are available in the market (Solis, 2012).

Analysis of Product Quality and Change of Price

Consumers in any market ought to use the price of the commodity provided in the market to determine their buying behavior in any time or about given season as measure of the quality of products they need to obtain or purchase. However, more consumers have little regard to quality of the products being provided in the market with substitution to minimal prices to obtain similar product being offered in the market. To some consumers they assume that the higher the price of the commodity being offered in market has direct translation to quality of product being offered at a time and the quantity being demanded. The perception of economic treatment of price outline and changing consumer pattern over the past few decades and about consumer changing behavior has been giving wrong impression to the prevailing market conditions (Feinberg & United States, 2008).

The studies further tend to provide analysis on the concept of some consumers using substitute products with little regard of the entire quality of the products being offered in the market. Thus, there is no relationship of direct prices of the product in correlation of the quality product being sold in the market which is highly contributing to changing consumer behavior. Apparently, to understand consumer behavior and changing pattern in buying behavior every business should be able to fully understand the environment in which the business is operating. In a competitive market situation company behavior and determinations of changing of prices is the key to change of consumer behavior and vice-versa which remains to be true. To determine the level of purchases which are made by consumers every business should be able to understand the requirements of consumers whether they are attracted with quality of products or are being attracted with price mechanisms which are adopted in any business organization (Chen & Yao, 2006).

With increased level of competition being experienced in market conditions have been the pillar determinant of attracting the consumer to an organization and increasing their buying pattern. Some of consumers are attracted with level of quality of goods and services being provided for in the market while others remain highly sensitive to change of price that are being experienced in any prevailing market conditions. They will tend to buy commodities at lowest prices regardless of the quality of the product being sold in market. They will tend to make more purchase as the prices of the commodity decrease while others will tend to stick to level of quality of goods and services being provided for by various prevailing conditions of the market. Therefore, they will tend to buy more as the quality of the products increase with contrary experience being true in any business environment (Archon do-Callao, 2012).

Conclusion

The levels of entry in the business industry have direct impact to changing of consumers’ behavior and buying pattern in the long-run operations of the business. To regulate consumer behavior there should exist, standard mechanisms in which prices are determined in any business environment. Therefore, the quality of the product should not be compromised in any case but should be maintained to enhance customer loyalty to using commodities being sold in the market. Lack of competition is the main source of consumer exploitation which is contrary to establishing any form of business in the current generations.

References

Archon do-Callao, R. S. (2012). Roads Economic Decision Model (RED) Economic Evaluation of Low Volume Roads.

Chen, J., & Yao, S. (2006). Globalization, competition and growth in China. London: Routledge.

Feinberg, R., & United States. (2008). The impact of international competition on small-firm exit in U.S. manufacturing. Washington, D.C.: SBA Office of Advocacy.

Solis, B. (2012). The end of business as usual: Rewire the way you work to succeed in the consumer revolution. Hoboken, NJ: John Wiley & Sons.

Taylor, T., & Teaching Company. (2008). America and the new global economy. Chantilly, VA: Teaching Co.