Please respond to one of there. 200 words if possible. DQ2 – Price Elasticity a.
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Question
Please respond to one of there. 200 words if possible.
DQ2 – Price Elasticity
a. In your own words explain price elasticity. Focus on explaining the difference between products that have elastic demand and those that have inelastic demand.
b. What types of products typically have inelastic demand? Why?
c. What types of products typically have elastic demand? Why?
d. For the following products indicate if your demand for the product is elastic or inelastic and why.
· Having a car
· Home cable service (all service providers have doubled their prices – elastic or inelastic?)
· Home internet service (all service providers have doubled their prices – elastic or inelastic?)
· Cell phone service (all service providers have doubled their prices – elastic or inelastic?)
DQ3 – Getting Juicy
Assume that the contemporary apparel company Juicy Couture has embarked on a new IMC strategy. It has chosen to advertise on TV during the NBC Nightly News and in print in Time magazine. The message is designed to announce new styles for the season and uses a 17-year-old woman as the model.
a. Evaluate this strategy, and if appropriate propose an alternative.
b. Using the AIDA model explain your recommendation for how to increase sales of Juicy Couture products.
c. Explain which elements of the IMC mix you’d recommend using and why.
Explanation / Answer
DQ2 – Price Elasticity
Price elasticity is used to measure relationship between a change in demand vs change in the price of that particular goods. so price elasticity of demand is a measure of the relationship between a change in the quantity demanded of a particular good and a change in its price. Following is the formula for price elasticity of demand
Price Elasticity of Demand = % Change in Quantity Demanded / % Change in Price
If due to a small change in price there is a large change in quantity demanded, then we can say that product is elastic (or responsive to price changes). Conversely, a product is inelastic if a large change in price is accompanied by a small amount of change in quantity demanded.
For example, if the quantity demanded for a good increases 15% in response to a 10% decrease in price, the price elasticity of demand would be 15% / 10% = 1.5. The degree to which the quantity demanded for a good changes in response to a change in price can be influenced by a number of factors. Factors include the number of close substitutes (demand is more elastic if there are close substitutes) and whether the good is a necessity or luxury (necessities tend to have inelastic demand while luxuries are more elastic
We can take example of Petrol. petrol doesn’t have alternatives because people with a car, need to buy petrol. So, if generally, if the price of petrol goes up, demand proves very inelastic. Means there is very very less change if price goes up or goes down.
On the contrary there are luxary goods like luxury cars. There price difference can influence the decision of customer to buy or not buy thereby effecting the demand.
Necessities like petrol, mobile services etc do have inelastic demand. Because without petrol one can not drive his petrol car and travelling is a necessity. He will not have other options as well. And other options hardly suits to that person who need car for travelling. In mobile services also there is no other option which can matches the services provided by mobile. Also for example salt, salt has very less usage but its a necessity , thats why change in price doesn’t effect the consumption of salt. It remains same. Neither increase nor decrease.
c. What types of products typically have elastic demand? Why?
Some beverage brand like where options are available. Suppose if coca cola increase there price drastically customer may opt for pepsi or another beverage. Also in case of food brands, change in the price of particular brand or particular things may lead to increase in consumption of other. Also like if pork price goes up, customer may opt for chicken or mutton. Luxury goods like buying a luxury car, if there is a change in the price it can affect the decision of buying it or not. Because its not a necessity. In case of elastic demand, customer always have alternatives or the goods they are seeking is not an absolute necessity.
d. For the following products indicate if your demand for the product is elastic or inelastic and why.
• Having a car
This demand is elastic. Actually having a car or not having depend upon the capability of the customer. So if there are increase in price then customer may choose to defer the purchase so its elastic
• Home cable service (all service providers have doubled their prices – elastic or inelastic?)
I think this becomes inelastic if all the service providers double their prices. As cable services is become a necessity and there is no any other alternatives available for it. Internet is again expensive thats why its inelastic only
• Home internet service (all service providers have doubled their prices – elastic or inelastic?)
I think so far home internet service doesn’t become inelastic as its not an absolute necessity. And there are other options available with the customers as he can use internet through mobile or in office for his required works. Also he can go to cyber cafes. So demand is elastic only.
• Cell phone service (all service providers have doubled their prices – elastic or inelastic?)
I think this becomes inelastic if all the service providers double their prices. As mobile services is become a necessity and there is no any other alternatives available for it. Many people do their business through mobile only and there is no any other close alternative which can match the same service level
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