1 . How does elasticity affect the pricing structure of products and services? 2
ID: 1102118 • Letter: 1
Question
1. How does elasticity affect the pricing structure of products and services?
2. If the government increases regulation, how does that affect the elements of price, supply, and demand? Provide an example where a product or service is regulated. Why was the regulation needed, and how did it affect price?
3. What are the purposes of tax programs? Choose a type of tax (income, sales, excise, or social security) and explain who bears the burden and who gets the benefit of that tax.
4. How does product utility (usefulness) affect the prices customers are willing to pay? Select a product and explain the utility it provides to you and the price you are willing to pay.
5. How do brands affect the price we are willing to pay? Outline a product or service where brand name is important to you and explain why.
Explanation / Answer
1. How does elasticity affect the pricing structure of products and services?
Elasticity of demand and elasticity of supply are two things that affect the pricing for goods and services. For elasticity of demand, if a product has numerous competitors in the market of substitute goods, this can cause it to have more elasticity of demand since it can easily be substituted by another product. With this in mind, the price of the product fluctuates in sync with what the demand may be for the product. The more demand for a product by consumers usually leads to higher prices being established by the producer and low demand leads to lower prices being established. This is the same reasoning behind the elasticity of supply where the amount supplied by the producers of a product is either responsive or not by consumers to price changes. If the price is low and consumers buy more of it the supply is elastic. If the price is high and not many consumers purchase it at that price then the supply is inelastic. The amount that a company can supply to consumers generally affects what price they may decide to sell it for.
2. If the government increases regulation, how does that affect the elements of price, supply, and demand? Provide an example where a product or service is regulated. Why was the regulation needed, and how did it affect price?
These regulations affect the price of a product because the government is the one who can set what the highest price it can be sold at (price ceiling) and what the lowest price is may be sold at (price floor). Government regulations typically increase the cost of production for the business being regulated which would cause the quantity of supply to be lower and this would affect demand as well because the less products available could lead the demand to go up or down depending on the price set as well. The government regulates businesses in order to make sure there are running their business in compliance to laws established and are stable in the market. In addition, the regulation is utilized to make sure the competition between businesses is fair and there are no problems or price fixing involved between any of the businesses. The regulation is usually costly for the business because the government is in control and this usually makes running the business more expensive during this time.
3. What are the purposes of tax programs? Choose a type of tax (income, sales, excise, or social security) and explain who bears the burden and who gets the benefit of that tax.
The purpose of tax programs is to distribute the wealth or money around equally to everyone. These programs are generally in place in our current system in order for the government to obtain any excess wealth and funnel it back into society, especially to those in need who require the extra monetary help.
For the social security tax, this is financed by the payroll taxes of employers and its employees. The benefit of this tax is given to the amount of money lost when workers either retire from their job, become disabled or pass away.
4. How does product utility (usefulness) affect the prices customers are willing to pay? Select a product and explain the utility it provides to you and the price you are willing to pay.
If a product is useful and also provides satisfaction when purchased by the consumer, these characteristics help influence the highest price that they will be willing to pay. Customers usually consider what the cost (price) they must pay to obtain a product and whether or not it increases their benefit (utility) or having possession of the product. In addition, the companies that produce products that are useful to consumers may purposefully produce a small amount and sell it at a high price; the need to have the product since it is scarce will go up for the consumer.
One product that provides me with utility is Colgate whitening toothpaste. This is because it always whitens my teeth and helps maintain my bright smile unlike any other product I have ever used. Since there is no other product that could compare to the Colgate brand that I buy, I am willing to pay a high price that ranges from $8 to $10 depending on the store I purchase it from and the size of the product.
5. How do brands affect the price we are willing to pay? Outline a product or service where brand name is important to you and explain why.
Brands provide product differentiation for competitors in a market to recognize who they are competing against as well as for consumers to recognize which brand provides them with a better product to their liking. When a consumer generally approves of a certain brand more than its competing brand, they are willing to pay any price to obtain that brand because of how the product has a higher utility amount.
One product that has a brand name that is important to me is Pringles. I prefer Pringles original chips over any other brand like Lay
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