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Evaluation of demand price elasticity - Essay Example

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Summary
Elasticity is an important concept in microeconomics and managerial economics. It has much practical utility in the real life business situations ranging from vegetables to crude oil. Every day we purchase various products at the varied price in different quantities…
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Evaluation of demand price elasticity
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Evaluation of demand price elasticity

Download file to see previous pages... The consideration which we pay for a product at a certain quantity is called the price of the product. When we talk of the product price, we mean market price. That is the price at which the product is sold to all buyers in the market. The quantity of a product that we purchase at a certain price is called the demand of the product.The price of a product and its quantity demanded are closely related in the sense that each of these has a bearing on another. When one of these two changes, the other also tends to change. This tendency is very well described by what is popularly known as Law of Demand. The law of Demand is a general law which need not be applicable in all situations. In certain situations, this law seems to be unrealistic. The Law of Demand states that when the price increases, the quantity demanded decreases and vice versa, other things remaining the same. The phrase 'other things remain the same' is an important one that it portrays the exceptions of Law of Demand. The Law of Demand, therefore, postulates the direction of change in one variable (price or quantity) due to the change in other variable. The law is silent about the magnitude of change; it talks only about the direction of change in one variable due to a change in another variable. It does not talk anything about the degree by which demand changes as a result of a change in price. Here lies the importance of Elasticity of Demand. This concept tells us the extent to which demand increases or decreases owing to a decrease or increase in price. Therefore, Law of Demand is a qualitative measurement whereas Elasticity of Demand is a quantitative measurement.
Research Methodology
At this juncture, the present research study is an attempt to analyze and evaluate the price elasticity phenomenon with the support of an empirically collected data on a certain product and its substitutes. The research is basically a qualitative one that analyzes the data to arrive at logical conclusions. The research uses observation method for data collection as the recorded data alone are sufficient. The data are collected directly by approaching three shops at different places (City I, City II and City III-for convenience) in the New York City. The demand elasticity is evaluated over a period of twelve months, which is segregated into four periods of three months each. The price variations of selected brands over this period are collected and the quantity sold during the same period is compared with that of the other two locations. Therefore, the study takes into account the price of the selected products and their quantity sold (demand) during a period of 1 year, which later compared with that of same brands from two shops each in other two locations.
Unit of the study
Three similar products with different brands from one shop constitute the units of study. For comparison, two more shops at different places in New York City are located and similar three brands are taken from each of the two shops. Therefore, altogether the product range is nine of three different brands. The three brands from City I form the units of study about which the price elasticity of demand is evaluated in comparison with similar brands from City II and City III.
Data Collection
The present study relies heavily on secondary data. Primary data are not supposed to be collected as the study depends upon the recorded fact such as price, quality and demand (quantity sold). Data are collected directly by approaching shops from three shops. Observation method is also applied to assess the quality of the products. The printed price less any discount form the price of the products and demand data are collected from the records of the concerned shops. The study is ...Download file to see next pagesRead More
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