Essay Sample on Elasticity of Demand

Introduction

In economics, the demand for a certain good is usually represented by the demand curve. In this case, the price elasticity demand for goods will be elasticity lying between zero and infinity and any changes that occur prices will result in relative changes in demand of the product. Certainly, price elasticity demand for particular goods has a degree of implications to businesses. For instance, Pinkberry which serves soft Ice cream has to put priorities when determining the elasticity of their product (Saha & Bhattacharya,2018). As such in case of an increase in the price of their ice-cream flavors and the demand remain the same, this would show inelasticity in their product. Pricing decision is critical in this business because elastic goods are sensitives in price increase whereas inelastic goods are less sensitive. It's important to note the cost and overall profits returns the Pinkberry company will attain in their ice-cream business.

Is your time best spent reading someone else’s essay? Get a 100% original essay FROM A CERTIFIED WRITER!

Save 25%

The price of the goods determines the business demand. Certainly, when the prices rise probably the business will purchase fewer goods. On the other hand, when the prices drop, the business will purchase more goods and product. Moreover, business demand will change depending on the elasticity of income (Feenstra, 2018). High income for Pinkberry company will result in more investment as well as purchases for their products. Income elastic will happen when the company demands for certain goods change. On the hand, if Pinkberry company demand for their Ice-cream product stays at a constant point regardless of the company, the demand for these products and goods is certainly inelastic.

The cross elasticity of demand is a concept of an economy that is used to measure the responsiveness in quantity of demand for a particular good when the price of another commodity price changes. The price is calculated by using the percentage of the change in quantity demand of one commodity then dividing it by the change in percentage in the price of the other goods or commodity. Example the Pinkberry soft serve ice cream cross the demand for ice cream is positive when it demands increase when substitute products increases. Example if the price of one type of cream increases the quantity demand of another type of ice cream will increase as people will try to switch to less expensive and this can be reflected on the formula of cross elasticity demand where (percentage of change in the demand of another ice cream) divided by (the price of the increased ice cream price.) On the other hand, the cross price is negative is when the price of item increases and the close associate items decrease in value.

The advertising elasticity of demand can be considered as the measure of how the market can be sensitive to an increase or even a decrease in the saturation of advertising. This can be considered as the effectiveness of Champaign in generating new sales (Lehner, 2019). Example Pinkberry soft serve ice cream the adverting elasticity is when the commercial of an inexpensive good like ice cream can result in a very quick bump and on the other hand an expensive product from the company may face payback for a period of time because the product and less likely to be purchased on time this hence decrease demand.

Reference

Saha, D., & Bhattacharya, R. N. (2018). An analysis of elasticity of electricity demand in West Bengal, India: Some policy lessons learned. Energy policy, 114, 591-597.

Feenstra, R. C., Luck, P., Obstfeld, M., & Russ, K. N. (2018). In search of the Armington elasticity. Review of Economics and Statistics, 100(1), 135-150.

Lehner, S., & Peer, S. (2019). The price elasticity of parking: A meta-analysis. Transportation Research Part A: Policy and Practice, 121, 177-191.