Give an example of sales based on price elasticities that you have seen or used. Why do you think it worked (or didn't work)?
What topic made the least sense to you in this chapter?
Price Elasticity Explained
Elasticity is the a measure of how much buyers and sellers respond to changes in market conditions.
When the quantity demanded responds only slightly to changes in the price demand is said to be inelastic.
When does demand tend to be more elastic?
- If a close substitute is available (the book used the example of butter. If the price of butter goes up you can look to the price of margarine--a substitute--to see if that price is lower).
- If the good is a luxury and not a necessity.
- If the market is narrowly defined. (Vanilla ice cream is a more narrowed a category than food).
- If buyers have substantial time to react to a price change.
My example of sales based on elasticity:
Because I do a lot of baking for personal and professional use I buy flour, salt, sugar, eggs, butter, milk and spices on a fairly regular basis. I have noticed that the sugar now comes in 4 pound bags instead of 5 pound bags because the price of sugar has gone up but the manufacturers want the consumer to continue buying sugar at the same price while supplying smaller quantities of it. Eggs are another thing that have gone up in price. I tend to buy organic, free-range eggs but when the price goes up too high I will put aside my want of organic eggs in exchange for regular store brand eggs. My last example of elasticity is butter. Again, I usually buy Challenge Butter because I like that it is not treated with rbST (growth hormone). Lately the price of this has been $3.99 for 1 pound of butter. If I have a $.75 coupon the price goes down to $3.24 which sometimes is less expensive than the store brand. If I do not have a coupon I will buy whichever is cheaper.
The topic that made the least amount of sense to me in this chapter had to do with the concept of "cross-price elasticity of demand."
No comments:
Post a Comment