The Importance of the Price Elasticity of Demand - Research Paper Example

On the other hand, Fair Trade is a controlled certification method where there are conditions set on agricultural commodities production. The goods of Fair Trade that are produced according to the criteria followed in the trade are warranted a small price above the price of the world market. The main important part of this Trade is the products’ market in the countries that are developed. The main purpose of this study is to look into factors that mainly affect Fair Trade coffee demand and work out the coffees’ price elasticity of demand.

This research is mainly aiming in giving answers why many purchasers may buy products of Fair Trade at higher prices than the substitutes of Fair trade goods. In addition, there is price elasticity of demands impacts on retail revenues mentioned in this paper. The findings obtained from this study showed that Fair Trade demands of coffee depend on various functional features like brand, price, taste and locations of sales. According to the theoretical models that are founded on the complementary utility, conclusions that arise are that price elasticity of demand mainly depends on the Fair Trade and regular coffee price differences and the demands of Fair trade coffee shares in comparison to the consumption of the whole coffee (Giovannucci, 105).

Price elasticity of demand measures products quantity responsiveness to changes of the products price. It is referred to as the own price demand elasticity for a product sometimes. Many theories provided have concepts of consumers aiming to make best use of their personal utility. It would be unreasonable if a customer is likely prepared to spend more on the Fair Trade goods than for the Fair Trade good substitute if they have the same quality (Fairtrade Labelling Organizations International, 1).

Many people using this product have interests on the conditions used in producing the Fair Trade goods even though there may be no effect on the standard product quality. Fair Trade coffee is described a product that has innovations, whereby making the process of production to be good increases the product quality in a slight way. Many consumers, who are aware of the product and like it, are willing to spend more on the product quality that has been improved. In addition, consumers may be grouped separately.

Some consumers will take a product due to their characteristics and others due to the price of the product. Prices of these products are supposed to vary in different point of sales except there are features that permit the sellers to price the products differently. The location effects depend with the mobility of the consumers and if they buy all their products in one locality. There are various reasons that may lead to the Fair Trade coffee demand (Fairtrade Labelling Organizations International, 1).

The reasons may be the flavor, the brand, quality, price and convenience of the coffee may affect the decisions used while purchasing the product. Another factor that may affect the decision of purchasing is the origin of the coffee. There are negative values in the price elasticity of demand for products, this is there would be demand in a certain commodity if the price is low. In Fair Trade coffee, the price elasticity of demand is important in various ways (Riley, 1). Retailers may discriminate prices among customers if there is a low price elasticity of demand.

In a case where the demand is not elastic, there will be a less demand decrease to be suffered by the producers, even if the coffee prices are high. According to Giovannucci (161), this theory concludes that if there is a small Fair Trade Coffee price elasticity of demand, there will be great revenue obtained from the product sales even if there is an increase in the