Price Elasticity of Demand Harvard Case Solution & Analysis

Price Elasticity of Demand Case Solution

Introduction

            Market varies according to the needs and wants of the consumers. The demand is created in response to the consumer’s willingness to pay and willingness to buy.The price varies from elasticity to the in elasticity in its nature. When there is a small change of demand due to change in the price of a commodity, it is known as elasticity of demand. However, when there is a large change in demand of the commodity, the change is said to be inelastic in its nature.

            The inelastic demand is for the necessity products of the market. However, elasticity of demand exists for the luxurious demand. Elasticity of demand exists when there is a presence of an alternative product(s) in the market. Furthermore, elasticity for the demand remains increased when the market defined narrowly to the product for one another, for example food and ice cream. In the long-run, price elasticity is greater because consumers are able to adjust their purchase behavior.

Price elasticity of demand is one of the types of elasticity of demand. The price elasticity of demand refers to the involvement of the quantity demanded to the changes in the price. It is determined with the help of price change in quantity demanded to the percentage change of the price.The elasticity of demand depends on whether we move from a point of quantity demanded to the point second point of quantity demanded. Moreover, a price variation can be seen with the change of quantity A to B or B to A, in accordance to the quantity demanded.

Country Businesses and Elasticity of Demand

            Elasticity of demand has an effective role in the decisions of business firms.  Moreover, Government rules and regulations also get affected by the change in prices of these businesses. The price elasticity demand concept effectively influences devaluation and depreciation of acurrency on the export earnings of the country.

Price Elasticity and its impact on the businesses firms

It is of utmost importance that the business firms take price elasticity of demand into consideration. With the increase in the price elasticity of demand, the consumption behavior of the consumers also change. This is the reason that the businesses consider the coefficient of the price elasticity,which can change the quantity demanded of the commodity due to rise or fall of the prices.

For example, if the quantity demand is decrease with the increase in price of a commodity, it shows the false decision making by the firm as the consumer intended to consume the product less with the unusual rise of the price. Hence, firms lower-off their revenue. The company has to get the decrease in its revenue due to the increase in price with the effect of increase in its price.

Firms are usually unable to estimate the change in quantity demand due to change in the price.The reason for not considering the price elasticity is the ignorance to the coefficient of the price elasticity. However, non-availability of the data lead towards false or deviated anticipation of the change of quantity demand. Businesses do not take correct measures to evaluate the trends of the quantity of demand with the increase of decrease in price. Therefore, past trends of the quantity demand with the change in the price cannot be identified adequately.

It has been a great modification in past years among the research and development for the evaluation of coefficient of price elasticity. Firms have started to consider the date of past experiences in the change of the demand with the change in the prices of commodity. Furthermore, designing and testing are measures to evaluate the data appropriately.................

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