DISCUSSION QUESTION: we talked about what it is that makes a good or service hav
ID: 1221884 • Letter: D
Question
DISCUSSION QUESTION:
we talked about what it is that makes a good or service have a demand that is elastic or inelastic. There are five (5) characteristics that determine elasticity. Assume you are the marketing manager for a company that sells photo safaris to Africa; trips where people travel to Africa and tour the jungle and bush country to take photos of animals in their natural habitat. Your company puts together these trips. Using the 5 characteristics (or as many as you can) discussed in the book, explain to me whether the demand for your good will be elastic or inelastic and specifically WHY. Then, also explain how you would go about increasing your companies revenues based on how you answered the first part of the question.
This is like an essay problem
Explanation / Answer
Answer :
The price elasticity is a measure that with change in price, how much change is noticed in quantity demanded. The characterstics that determine price elasticity of demand are :
a). Availability of substitutes : The more possible substitutes there are for a given good or service, the greater the elasticity. When several close substitutes are available, consumers can easily switch from one good to another even if there is only a small change in price . Conversely, if no substitutes are available, demand for a good is more likely to be inelastic.
Since, the substitutes for the goods are easily available. Thus, based up the demand for such goods will be elastic.
b). Brand loyalty: A faith to a certain brand can override sensitivity to price changes, resulting in more inelastic demand.
As people love to buy generally what they like rather than price sensitive goods. The demand for such kind of products will be inelastic.
c). Duration of price change: In the short-term it may be difficult for consumers to find substitutes in response to a price change, but, over a longer time period, consumers can adjust their behavior. For example, if there is a sudden increase in gasoline prices, consumers may continue to fuel their cars with gas in the short-run, but may lower their demand for gas by switching to public transportation, carpooling, or buying more fuel-efficient vehicles over a longer period of time. However, this tendency does not hold for consumer durables.For non-durable goods, elasticity tends to be greater over the long-run than the short-run. The demand for durables (cars, for example) tends to be less elastic, as it becomes necessary for consumers to replace them with time.
As the goods of trip are not demanded in near time and are durable , Thus, the demand of the goods seems to be less elastic.
d). Degree of necessity: The greater the necessity for a good, the lower the elasticity. Consumers will attempt to buy necessary products regardless of the price. Luxury products, on the other hand, tend to have greater elasticity. However, some goods that initially have a low degree of necessity are habit-forming and can become "necessities" to consumers (e.g. coffee or cigarettes).
As the company is selling the products that can be categorised as luxurious , thus, tend to have more elasticity.
e). Proportion of the purchaser's budget consumed by the item: Products that consume a large portion of the purchaser's budget tend to have greater elasticity. The relative high cost of such goods will cause consumers to pay attention to the purchase and seek substitutes. In contrast, demand will tend to be inelastic when a good represents only a negligible portion of the budget.
Thus, for the trip products, all matters is the cost of the products. The high costs of the products may lead the consumers to buy substitutes. Thus, the demand of the products will be elastic.
Crux: Based upon the above 5 characterstics that determine price elasticity of demand, the demand for the trip products will be Elastic.
Further, The company's revenue can be increased by removing the chances of elasticities in each case of determinant characterstic. By doing so, the sales will be inflated leading to a major customer base , thus, leading to an increase in revenue.
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