StudentShare
Contact Us
Sign In / Sign Up for FREE
Search
Go to advanced search...

Price Elasticity of Demand - Essay Example

Comments (0) Cite this document
Summary
This research will begin with the statement that the price elasticity of demand (PED) is used to measure how price changes affect the number of goods or services sold. It is therefore a responsive mechanism and is applied to all industries…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER93% of users find it useful
Price Elasticity of Demand
Read TextPreview

Extract of sample "Price Elasticity of Demand"

Download file to see previous pages It is evidently clear from the discussion that in a business aiming at maximizing revenue, the PED has to be exactly 1. A PED higher than 1 reflects a very elastic product where the quantities demanded are largely affected by the price change. The figures in the paper reflect the way the various curves will look like in different scenarios. Mylan Laboratories Mylan Laboratories is a pharmaceutical company in Pittsburgh. The company announced an increase in the prices of their drugs. One client claimed that the company increased the price of a drug referred to as lorazepam from an initial $11 to $85. The man who had been a worker at an oil rig was involved in an accident and is now dependant on those drugs to relieve the pain. He is on a government scheme that entitles him to $1,000 every month. He usually uses around 100 pills every month and he has taken out a loan in order to finance his drug requirements. This move is seen as a means of fleecing the citizens as the pharmaceutical companies await the government to remove patents to some drugs that have long been on the patent list. There are others who are claiming that the move is in anticipation of the new health care bill. The pharmaceutical industry has been under a lot of strain caused by the AIDS pandemic and companies have been criticized for failing to reduce their prices to the benefit of millions of people living with the disease in Africa and Asia. The major point of criticism was the patents that protect these much-needed drugs hence driving costs of the medicine up. Pharmaceutical products are very inelastic as they are considered as necessities. Therefore, the price elasticity of demand for them would not exceed 1. In this case, Mylan Laboratories has increased their prices by close to 600% and this will have an effect on the demand as many people cannot afford the extra expense that is accompanied by the price increment. There are a number of factors that will inform the elasticity of the demand. First, the availability of substitutes is a major determinant. With the presence of generic drugs that are supplied by competitors, the increase in prices of the patented Mylan Laboratories’ drugs may decrease the demand. The substitutes’ closeness to the Mylan Laboratories’ drugs, their uniqueness and their prices may be the greatest deterrent to Mylan Laboratories increasing revenues from the sale of the drugs even at the increased rates. The second determinant is the cost of switching to the other drugs. Many consumers of drugs are usually covered by insurance companies. If the company is responsible for the purchase of drugs, this might make it impossible or expensive for the consumer to change to other drugs. The price of the patented drugs is too high for the citizens and there has been no significant increase in income. Another problem that may hinder the change in demand for the drugs may be brand loyalty. Some consumers are attached to certain brands such that they become insensitive to price changes. This might be so for the people with greater disposable incomes who still may find the increased prices still within their means. Another determinant of the PED is the time the consumers will take immediately after the increase. Some consumers may wait for some time in order for them to resume buying the product. ...Download file to see next pagesRead More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Price Elasticity of Demand Essay Example | Topics and Well Written Essays - 1000 words”, n.d.)
Price Elasticity of Demand Essay Example | Topics and Well Written Essays - 1000 words. Retrieved from https://studentshare.org/macro-microeconomics/1434292-explainusing-a-healthcare-example-that-you-are
(Price Elasticity of Demand Essay Example | Topics and Well Written Essays - 1000 Words)
Price Elasticity of Demand Essay Example | Topics and Well Written Essays - 1000 Words. https://studentshare.org/macro-microeconomics/1434292-explainusing-a-healthcare-example-that-you-are.
“Price Elasticity of Demand Essay Example | Topics and Well Written Essays - 1000 Words”, n.d. https://studentshare.org/macro-microeconomics/1434292-explainusing-a-healthcare-example-that-you-are.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Price Elasticity of Demand

Personal and Social Context of Agnes Price

...Discussion of Need in Relation to the Personal and Social Context of Agnes Price Submitted November 25, 2005 ID Abstract This paper will include an assessment of a 64 year old woman who lives with family and is suffering from depression. The assessment will be made based on Bowen’s System Theory with consideration for the fact that Agnes is in the latter part of her life span and has a number of stressful conditions to deal with. This case is being opened as a result of concerns raised during a family health visitor’s regular visits to the home where Agnes resides with her daughter and the young woman’s family. In addition to creating a case plan for Ms. Price this document includes a discussion of the rationale, theory and ethical...
7 Pages(1750 words)Case Study

A Stable Demand for Money Function is Necessary for the Success of Monetarism

... as exogenous. As a rule, the causation will run from left (MV) to right (PT). The increase in money supply will result to an exact proportionate increase in the Price Level (P) since Velocity (V) and Level of Transactions (T) are fixed and money supply (M) is exogenous. Therefore, we can conclude that a sudden increase in the money supply can result to price inflation. This is the main reason why a stable demand for money function is important. Because when M increases given that T and V are fixed; therefore, Money (M) and Price (P) will be greater than the Level of Transaction (T) and Velocity (V). Let us look at the situation wherein the supply of money is more than the demand for money. (See Figure 1 on page 5) The purchasing...
8 Pages(2000 words)Term Paper

Marks and Spencer: Factors Affecting the Supply and Demand

...Marks and Spencer - Factors Affecting the Supply and Demand - Total Number of Words: 2,075 Introduction Marks & Spencer (M&S), a British-owned retail company, was established by Michael Marks and Thomas Spencer back in 1884. (Marks & Spencer, 2008a) Despite the tight competition in the global market, M&S has maintained its reputation as one of the largest high-priced merchandise seller of food, wine and clothing not only in the UK market but also in more than 30 countries around the world. (BBC News, 1998) In general, Marks & Spencer’s food products is not limited to the bottle of wines, chocolates, and candy bars we see at the store counter. The company also offer the public other food items such as personalized cakes for special...
8 Pages(2000 words)Case Study

Sweatshops: Social Justice and the Demand for Cheap Goods

...Sweatshops: Social Justice and the Demand for Cheap Goods Sixteen hours a day, six days a week, you work in a garment factory in India to sew clothing for Gap Corporation. You eat mosquito-covered rice, twice a day if you are lucky, and use an outdoor latrine overflowing with the waste of your fellow workers. A rubber pipe reminds you to work faster. Cry over your conditions and an oily cloth is stuffed in your mouth. And you are only ten years old. This story is not from some sordid Charles Dickens’ novel. It happened to real children in the bright and shining economy of 2006 (Ehrenreich, 2008). Sweatshop conditions are not always as horrendous as those depicted in this story, but in a relative way, garment manufacturing offends every...
8 Pages(2000 words)Case Study

Binomial Method in Option Price

...BINOMIAL METHOD in OPTION PRICING This research illustrates the use of the Binomial method for pricing European and American options . These options have been priced by generating the Binomial tree for the stock prices and then for the options . This research deals with the important concepts related to option pricing with methods like Black Scholes method and the Binomial method. The fundamentals of option theory , European options , American options, put call parity have been discussed in the course of the research . The relationship between these two methods has also been highlighted . The step by step procedure in option valuation using the Binomial method , explains the simplicity and accuracy of the method . The Binomial method...
48 Pages(12000 words)Assignment

Impact of Forecasting Demand in Food and Beverage Service Organisation

Purchasing, storage, and production scheduling are some of the basic things needed to be adjusted periodically based on the demand in the market. It is not wise to purchase too many materials at a time when the demand was less. The to and fro movement of the material is essential for the smooth functioning of the storage area. Goods purchased and stored in the store must be despatched to the production area periodically before the expiry date to ensure that the organization might not suffer. But if the demand was poor, it is not possible to ensure the despatch of goods to the production unit which will result in wastage of materials. Generally, Purchasing, Storage and Production are the three areas in any manufacturing unit which...
6 Pages(1500 words)Research Paper

The Inventory Theoretic Model of the Transactions Demand for Money

...Critically appraise the inventory theoretic model of the transactions demand for money Table of Contents Critically appraise the inventory theoretic model of the transactions demand for money 1 Table of Contents 1 Introduction 2 The Inventory Theoretic Approach 3 Transactions Demand for Money 4 Criticisms against the Baumol-Tobin Inventory Theoretic Approach for Money Demand 5 Conclusion 6 Introduction The original proponent for the determinants of the demand for money was John Maynard Keynes. He suggested that the demand for money is basically dependent on three components, namely, the speculative demand for money, the precautionary demand for money and finally the transactions demand for money. All the three types of demand...
8 Pages(2000 words)Case Study

1.Describe how equilibrium occurs using the aggregate supply (AS) and aggregate demand (AD) framework. Use this framework to explain why real GDP fluctuates around potential GDP with specific reference to the current state of the UK economy

Aggregate demand curve represents the desired spending, consumer behaviour and the buying of equipment by governments and foreigners. The aggregate demand rises with the increase in expenditure caused by increased optimism by the households on lifetime incomes and increased need for the product. The combined monetary assets and the decrease in interest rates stimulate the desire to spend by the firms and households. Low interest rates reduce the saving reward and borrowing costs for households, but for businesses, this reduces the borrowing costs for investing in equipment and plant (James, Walte and James 2006, p. 777-790).
The aggregate demand curve slopes downwards due to the fixed nominal value for some assets, particularl...
6 Pages(1500 words)Essay

A critical literature review and initial conceptual framework(The Impact of Price Changes on the Brand Equity of Toyota in Saudi Arabia)

... increased significantly and 1986 when energy prices decreased significantly. Research findings indicate that while energy prices corresponded with consumer spending, it was not the primary determining factor (Edelstein & Killan, 2009). Verboven (2002) examined empirical data of automobile purchasing in Europe where consumers can choose between diesel and gasoline vehicles. Diesel vehicles get better mileage on the diesel and diesel attracts less tax than gasoline. Yet, consumers in Europe are more partial to gasoline vehicles (Verboven, 2002). Moreover, despite the perceived high demand for fuel efficient cars such as hybrid cars, annual sales did not meet expectations (Read, 2012; Tuttle, 2012). It would therefore appear...
40 Pages(10000 words)Essay

The Scope and Scale of the Impact of the Demand for Services on the Management of Resorts and Spas

... in the delivery of resort and spa services to potential customers; (2) to offer a wider range of programs, events, services, and therapeutic activities; (3) to always be informed of the changes in the preferences and demographic characteristics of resort and spa customers; and (4) to satisfy the needs of customers, from pleasure to health and wellness. Management scholars recommended strategies that address customers’ needs, within the framework of the four Ps: price, promotion, place and product. They suggested that resort and spa managers should be flexible, versatile, cope with the changes in the preferences and demands of resort and spa customers, and keep on enhancing dissemination of information about the quality of resort and spa...
8 Pages(2000 words)Coursework
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Price Elasticity of Demand for FREE!

Contact Us