Price-Elastic Products
When would you want to own a business that sells price-elastic products? Why?
The demand for price-elastic goods is extremely sensitive to increases in prices. An increase in price of a price-elastic product will result in a larger corresponding decrease in the demand of that product. Price-elastic products operate within competitive markets, as consumers have the flexibility of shifting their purchasing power towards other goods and services. An example of a price-inelastic product would be a product produced by a monopoly such as a utility (Price elastic products, 2008, Econ help). In general, price-elastic goods favor the interests of consumer, not suppliers.
There are many different types of markets for price-elastic goods: "For example, confectionary is quite elastic, there are many different types to choose from; but the market is still quite profitable" (Price-elastic products, 2008, Econ help). For chocolate, the overall demand is stable, but consumers have many choices, so for individual retailers the price seems elastic. In a recessionary market it might be advantageous to sell a cheaper version of price-elastic goods. Since the demand for chocolate is constant, but different types are price-elastic, selling a downscale version of the product might result in higher profits. Goods that can be produced in high volumes, and can make a profit by the producer earning a small profit off of a high output is one example of how price-elastic goods can be profitable during an economic downturn -- through economies of scale and pricing low. Finding a cheaper way to produce the good with new technology and pricing the product lower than competitors is another example of how to make price-elastic goods profitable. The price remains stable but the costs of production are lower, so the producer makes a larger profit.
Works Cited
Price elastic products -- are there any benefits? (2008, March 28). Economics Help. Retrieved May 14, 2009 at p://www.economicshelp.org/blog/business/price-elastic/
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