Price Elasticity of Demand
For a firm looking to boost its profits, it must consider how a change in price might affect the total profits. The most important concept to this analysis is price elasticity of demand. The underlying principle of price elasticity of demand is that a change in the price of a good will result in a change in demand. The degree to which this occurs is the rate of elasticity. Price elasticity of demand is determined by dividing the change in demand by the change in price. Alternatively, a variety of price points can be graphed and the slope of the demand curve can be determined (NetMBA, 2010).
In either case, a company that is seeking to maximize its revenues will need to determine the point at which it has achieved the optimal price and demand. This is the point at which the price multiplied by the demand is the highest. In analyzing this for the point of maximum profit, both fixed and variable costs will need to be analyzed as well. If price elasticity of demand is high, then the demand will change dramatically in response to a change in price; if the elasticity of demand is low, then demand will not change much when price is changed. Occasionally, goods have a negative price elasticity of demand, where an increase in price increases demand for the good. Many luxury goods fit this definition.
There are a number of considerations that impact on a firm's price elasticity of demand. This report will focus on Starbucks. The coffee chain has traditionally built...
Price Elasticity Airlines The piece "Airlines try cutting business fares, find they don't lose revenue" explains how major airline firms in 2002 cut their business travel fares in an attempt to generate more business "and bring back business travelers who are staying at home, buying in advance or running to discount airlines" (McCartney, S. November 22, 2002). Of particular interest in this dynamic is the effect on total revenue generation resulting
Apple Inc. Supply and Demand Apple is a U.S. multinational company that specializes in manufacturing and marketing of electronic products. Top Apple brands include iPhone, iPod, Apple Computer, and iPad. Globally, Apple is ranked as the second largest global electronic company with over $215.6 Billion revenue at the end of the 2016 fiscal year. Apart from the company superior financial performances, Apple has enjoyed high demand for its products globally
Apple Inc. Feras Awwad Apple is one of the world's principal producers of a product mix consisting of a range of electronics goods and gadgets, as well as their related software applications, in a broad range of different international industry segments. The company operates on an oligopolistic model and sells products that are relatively inelastic. A microeconomic analysis is used to discuss the relevant factors and make recommendations based on these insights. Analysis
Food Capital Budgeting Strategy for Price Elasticity Major effects of government policies on production and employment Government Regulations for fairness in the low-calorie, frozen microwavable food industry Major Complexities in Expansion via Capital Projects & Key Actions Convergence between the Interests of Stockholders and Managers Strategy for Price Elasticity The Price Elasticity is a tool that is used by economists and business to measure exactly the quantity response that is needed to adjust to a change in
CPI Price elasticity of demand refers to the degree to which demand changes given a change in price. Consider an example, if we sell our toothbrushes for $2, and demand is 100. If we increase the price of toothbrushes to $2.10, how much does that affect demand? That is price elasticity. There are basically two types of elasticity -- elastic demand and inelastic demand (NetMBA, 2010). Elastic demand is a situation where
Demand and supply are the core concepts of economics and these are what determine the price of any given item. When demand of a certain item increases, it is usually followed by a corresponding increase in supply. And thus the price is affected. However there are times when demand increases more sharply than supply and this causes price to move up. In any case, price is directly dependent on supply
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