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The greater the percentage of income the commodity represents, the greater the elasticity because it will attract people’s attention as a result of its high cost (Moschandreas, 2000). If a commodity represents a small percentage of the consumer’s income, on the other hand, it will have little effect on demand, and is deemed to be inelastic. Therefore, the purchasing power of the consumer affects elasticity a great deal.
Necessity also profoundly affects elasticity. If a product is necessary, that is, if one cannot do without a product, elasticity is reduced because people will still buy the product irrespective of the change in price (Ferrell, 2010).
The availability of alternative goods affects elasticity. If a substitute good is close and readily available to the market, elasticity will be high since people will have the choice to switch to the attractive alternative. This can be necessitated by the slightest of changes in prices, and therefore largely affects elasticity (Ferrell, 2010). Substitute goods availability and reach is a factor that many companies look at in price consideration due to its massive impact on elasticity.
Some factors have the least effect on elasticity. Though relative, the effect that these factors have is thought to be negligible. Time is one such example. Price changes that persist for short time periods affect the demand for a good, and subsequent sales far much less than price changes that hold for a long time. If a price change holds for a long time, elasticity is likely to be high since the customers will have time to find suitable alternatives (Moschandreas, 2000).
Loyalty to a specific brand affects elasticity. This is so because if a consumer is loyal to a brand, elasticity is low as the variables that affect the product will not affect its demand. However, it s worth noting that with time and availability of better alternatives, loyalty eventually
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For example during recession companies lower their prices in order to entice customers to spend. People are very tight with their money during bad times due to fear of loss of income from events such as massive layoffs which are common corporate tactics in the business world.
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.
It carries out business in 157 countries across the globe and employs about 202,000 people. GM produces both trucks and cars in 31 countries. Besides selling its automobiles, GM also offers servicing facilities and security and information services in all its locations across the globe.
The supply side constraints may push up the prices. Similarly elasticity of demand for the product acts as a limiting factor to sales. However, in real life situations, the elasticity of demand is governed by diverse factors such as branding, cross selling, value addition, creating new uses for the products, multi-level marketing, direct marketing, discount sales and online marketing.
When a child learns a chapter of science from mother then it becomes a want for the service of education. If that very student goes for a private tuition, then it becomes a demand because certain money has to be paid to the tutor. The father of economics Alfred Marshall explained the Law of Demand.
In the recent studies, the economists suggest that price level for a product introduced by the members of a company largely depends on the elasticity of market demand for the product. Price Elasticity is basically the degree of responsiveness of the change in quantity demanded for a product with respect to the change in the price level of the product.
Depending on other factors in the market, supply and demand would determine the price of a product in the market. This paper would look into a shoe company and determine whether there is a relationship between the demand of the shoes manufactured and the prices that the company puts in the market.
Actually, the theory of consumer behaviour explains that quantity demanded of a particular good doesn't only depend on its price but the price of other goods and services also creates an impact on it. But, in case of cross elasticity of demand, you have to keep one important thing in mind, i.e.
The competitive market yields a total surplus equals to A & B in Figure 1. The above equlibrium level only yields C&D because in that case price is too low so suppliers will only supply until Q1. The below-equilibrium level of output is associated with a very high price, therefore as shown in Figure 3 consumers will only demand up to Q2 and yields total surplus equals to E&F.