Discussion Responses In Your Responses Comment On At Least T

Discussion Responsesin Your Responses Comment On At Least Two Posts F

Discussion responses should involve commenting on at least two posts from peers, sharing an example of a company that experienced a change in revenue due to a change in the price of their goods or services. Additionally, after reviewing the peers’ posts, explain which determinants of price elasticity of demand might be causing the observed change in demand.

Paper For Above instruction

Price elasticity of demand is a crucial concept in understanding how changes in price influence consumer behavior and consequently a company's revenue. When a company adjusts the price of its goods or services, the resulting change in demand can significantly impact revenue, depending on the nature of the product and market conditions. Variations in demand as a response to price changes are governed by several determinants of price elasticity of demand, primarily including whether the product is a luxury or necessity, the availability of substitutes, and whether the market for the product is narrow or broad.

Firstly, whether a product is classified as a luxury or a necessity influences demand elasticity. Necessities, such as medications or basic foodstuffs, tend to have inelastic demand because consumers need them regardless of price, often leading to minimal changes in quantity demanded when prices fluctuate. Conversely, luxuries, like high-end electronics or designer apparel, typically have elastic demand because consumers can cut back on these goods if prices rise or opt for substitutes, impacting overall revenue more significantly when prices change. For example, Apple’s iPhone products can be considered a luxury; if Apple raises prices, many consumers might delay or forgo upgrading, resulting in a decrease in sales volume and possibly affecting the company's revenue negatively.

Secondly, the availability of substitutes affects demand elasticity. Products with close substitutes tend to have more elastic demand because consumers can easily switch to alternatives if prices increase. For instance, if the price of Coca-Cola rises significantly, consumers might shift to a generic brand or other soft drinks, decreasing Coca-Cola’s sales volume. On the other hand, products without close substitutes tend to have inelastic demand, allowing companies to increase prices without substantial drops in sales. For example, insulin for diabetes management has inelastic demand because no substitutes are available for essential health reasons.

Thirdly, the market size or the breadth of the market impacts elasticity. Goods sold in broad markets usually have more elastic demand because larger markets tend to offer more alternatives and increased consumer choice. Conversely, niche or specialized markets might see inelastic demand because fewer substitutes exist. For example, luxury yacht manufacturers operate in a narrow market where demand may be less sensitive to price changes due to the exclusivity factor.

To illustrate these dynamics with real-world examples, consider the case of Netflix. When Netflix increased subscription prices marginally, a decline in subscriber numbers was observed, indicating elastic demand influenced by the availability of substitutes such as Amazon Prime, Hulu, and other streaming services. The elasticity determinants here include the presence of substitutes and the elasticity of demand for digital entertainment subscriptions.

Another example involves airline ticket pricing. Airlines often adjust prices based on demand elasticity. During high travel seasons, demand tends to be less elastic, allowing airlines to raise prices without losing many customers. Conversely, in off-peak times, demand becomes more elastic, and airlines may lower prices to attract customers. The determinants influencing these changes include the market's broad or narrow scope, consumer substitutes, and whether air travel is viewed as a necessity or luxury.

Understanding these determinants helps businesses strategize pricing to optimize revenue. For instance, a firm selling essential medicines with inelastic demand might increase prices without significant drops in sales, boosting profit margins. Conversely, companies dealing with luxury products or in markets with many substitutes must carefully monitor price changes and consumer responses to remain competitive and profitable.

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