MGM626-0902A-03 Economics for Decision-Making - Phase 3 Discussion Board - Essay Example

Economics for Decision Making – Discussion Board Explain the differences among inelastic, elastic, and unitary price elasti Price Elasti represents the responsiveness of the quantity demanded from a market to a change (increase or decrease) in price of the product. The demand supply relationship indicates that an increase in price will reduce the demand and vice versa. Price Elasticity is a measure of that change in demand to a change in price. Price elasticity is a negative value, as the price and quantity demanded are inversely related.

Based on the value of the price elasticity, it can be classified in to elastic, inelastic and unitary price elasticity (Nellis & Parker, 2006).i. Elastic:Price elasticity will be elastic if a change in price causes a proportionately higher change in demand, i.e., the price elasticity of demand will be greater than 1. Hence a unit change in price will cause a change in demand which is larger than one unit.ii. Inelastic:Inelastic price elasticity is where a change in price causes a proportionately smaller change in demand.

In this case the value of price elasticity will be lesser than 1, i.e., a unit change in price will cause a change in demand which will be lesser than one unit.iii. Unit Elastic:Unitary price elasticity is a case where the quantity demanded changes in proportion to the change in price, i.e., the change in price is equal to the change in demand. Hence the value of unitary price elasticity, as the name indicates, is 1.(Sloman and Sutcliffe, 2000)2. What questions would you ask?The questions that need to be answered are as followsi.

The value of price elasticity in the current marketsii. The reasons for the price elasticity being higher in Brazil marketiii. Marginal costs and mandatory profit mark ups, in case of expanding abroadiv. The currency exchange rate of Real to Euro over the past few years3. What recommendations would you have for the CFO?The reasons for the price elasticity being higher in the Brazil market can be analyzed and researched to find any possible alteration or substitute to the product that will reduce the price elasticity.

Also, the trend of the currency exchange rate of Real to Euro over can be analyzed to predict the future values. This will indicate the potential revenue in Euro that can be earned from Brazil market and give a clear indication whether the venture will be profitable. Also, the prices in Real can be set in such a way that would attract more customer base and when the currency is exchanged, the company earns a significant profit margin.BibliographyNellis, J.G., & Parker, D., 2006 Principles of Business Economics, 2nd Edition, Financial Times ManagementSloman, J.

and Sutcliffe, M. (2000), Economics for Business, 3rd Edition, Prentice Hall, Essex