Autumn Assignment- Demand and Price Elasticity of Demand Part A Price elasticity of demand is a measure of the sensitivity of demand for a product to changes in its price. (Evan Davis et.al. 2003) An elastic demand means that the quantity demanded is responsive to changes in price; inelastic meaning that the quantity demanded is unresponsive to changes in price. PED can be measured by dividing the percentage change in quantity demanded by the percentage change in price. There are a number of factors effecting price elasticity of demand, the overriding determinant being the availability of substitute goods to the consumer, the more that are made available, the higher the elasticity is likely to be as buyers can easily switch from one product to another.
To stay profitable, sellers must receive minimum prices that “cover” their marginal costs (McConnell et al., 2009). If selling a particular service generates more revenue than what it costs then sell it, if not then don’t. Pricing and Non-Pricing Strategies Pricing strategy is how a business depends on how to maximize profits. According to (McConnell et al., 2009) not all sellers must create or accept a “one-for-all” price. Most firms have “market power” or “pricing power” that allows them to set their services prices in their best interests.
In contrast, if there is not active market, market value accounting requires the use of estimation subject to uncertain assumptions, personal judgment, and subjective information about future values, such as discount rates and allowance for doubtful accounts. FASB has broadened the framework and disclosure practices to increase the reliability of market value accounting. However market value accounting is still emphasize the role of managerial judgment in the valuation process. Besides, market value accounting offers management the opportunity to manipulate the bottom line. So it’s less reliable than historical costs.
In socio-economic perspective, a market is said to be an institution ensures the exchange of products and goods among buyers and sellers. Increase and decrease in price indicates the market function. It’s a natural and neutral process of exchanging goods among sellers and buyers according the current demand. When price becomes high suppliers are happy to supply the good, whereas consumers wait for the price to come down. If price become equilibrium, market is said to be cleared.
Discuss when, and why to use single-sourcing and when and why to use multiple sourcing E.x. include advantages and disadvantages/challenges with the two sourcing principles/concepts When deciding whether to use single or multiple sourcing, the management has to evaluate suppliers out of quality, delivery, technology and suppliers support. Single sourcing is common when the product and/or service are directly linked to the core- competence and the demand for JIT is important for the buying firm. Firms using single source will get a better price (economic of scale) and also a better contact with the supplier and more. However single sourcing can be devastating for a firm, worst scenario the firm would not receive any products.
* Elasticity of Demand * The demand for disposable diapers should be considered as elastic. This is because a decrease in the price will lead to an increase in revenue. Even though a lesser price is received per unit, enough additional units are sold to more than make up for the lower price. When the prices are lower, people will be more inclined to stock up or to buy bigger packages at one time. They will also be more likely to buy the premium diapers that they do not usually purchase due to the higher price.
2. What item costs and revenues are relevant to the decision of how many units of that item to stock? The item costs relevant to the decision of how many units of that item to stock are the liquidation costs if the item has not been demanded. The revenues related to this same decision are the contribution margins of that item if it has been demanded. The two are used in a way that balances these costs and revenues.
THE ALGEBRA OF BREAK-EVEN ANALYSIS Let QBE denote the break-even output level. By definition TR (at QBE) = TC (at QBE) or TR (at QBE) = TFC + TVC (at QBE) The break-even condition (1) holds true for any cost and demand functions. Hence, in general, when costs and demand are complex, the analysis of this condition might not be any simpler than the analysis of profit maximization. Yet, what is widely known in business as break-even analysis is indeed much easier than profit analysis, although it also starts with the above identity, because it makes a very important assumption: that price and average variable cost do not change with output level. Thus, if we assume that price and AVC are constant, (1) can be rewritten as follows P.QBE = TFC + AVC.QBE which yields: (1) Q BE = TFC P − AVC (2) K The difference “P !
The success of strategies depends on ability of an organization to satisfy customer needs better than its competitors in market. Krishna & Vasant (2006). Therefore it can be said that marketing mix strategies in retail are highly influenced by the customer’s needs and requirements and strategies adopted by competitors. That aim of marketing mix strategies in retail sector is to satisfy specific customer needs with price strategy that can make some profit for the organization (Kurtz et al,2009) Blankson(2010) explain that retail marketing mix strategies should aim to create distinct image in the mind of consumer while mix can vary on the basis type of specific market requirements. Many elements can be placed to form marketing mix of any organization but most significant elements are given as follows (i) Store location (ii) Merchandise and Category Management (iii) Pricing (iv) Inshore marketing (v) Customer Relationship Management These retail marketing mix strategies at Argos are discussed here in detail (i) Store Location:- The selection of store location is most significant and important decision and success of business heavily relies on this decision.
INCOME ELASTICITY OF DEMAND Income is a factor that can help to determine how much or how many units a product or service can sell in a determined period of time. Thus, changes in income are important to be monitored, as well as understanding the kind of good we have. To do this, we use Income elasticity of demand (Ey) which measures the effect of a change in income in quantity demanded. The basic formula for calculating the coefficient of income elasticity is: Percentage change in quantity demanded of a good divided by the percentage change in real consumers' income. Depending in the result of this equation the good can be thought as a normal good when the result is > 0 (positive income elasticity), or an inferior good when the result is < 0 (negative income elasticity).