Everyday Marketing Ideas

Elasticity of Demand For Economics

Elasticity of demand as the measure of the quantity demanded in relation to the change in price. A higher number corresponds to higher price sensitivity. This has increased for many firms over the past 10-15 years. One cause is an increase in competition from foreign countries. one example in the text deals with Kodak film and competition from Fuji film and 3-M. Where Kodak once had the market cornered on film and people were not very sensitive to its price, or inelastic, as it was something everyone needed and there were no substitutes. However, competition from Japan and China drove the price of quality film down and Kodak Film became more price-elastic. Competition from technical advances and the ability for people to purchase digital cameras relatively cheap and print ones own pictures has further made the price of film and film development price-elastic.

Firms within an industry compete directly and thus their products are more or less a substitute. The overall industry, on the other hand, is less likely to have strong substitutes. A person wishing to go to an entertainment event will have many options to choose from based on price. Law of demand states that most consumers will buy when prices decline and less with price increases. If a firm decides to raise their prices in today’s economy they must first determine the reaction of their customers. If their customers remain loyal during these increases, they will survive and their revenue will increase however, if their customers leave in large amounts the firms revenue will significantly decrease. consumers are highly responsive to some product increases (such as restaurants) which causes a decrease in the quantity purchased.

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