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Price elasticity of demand with coca cola
Price elasticity of demand describe
Price elasticity of demand describe
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Price Elasticty of Demand: Coca Cola Company
Price Elasticity of demand measures the change in the quantity demanded in response to a change in market price of the commodity. The same is measured by following formula:
Price Elasticity of Demand= % Change in Quantity Demanded/ % Change in Price
In context of Coca Cola company, the price elasticity of demand can be described as change in quantity demanded of Coca Cola when the company changes the price of the soft drink at which it is offered to the consumers. For instance, if Coca Cola increases the price of 300 ml Bottle from $1 to $2, then it is obvious that the consumers will decrease their quantity demanded following the decision of the company to increase the price.
Price($) Quantity Demanded(Units)
2 15
4 5
Thus, Price Elasticity of Demand= % Change in Quantity Demanded/ % Change in Price
= (15-5/15)*100/(4-2/2)*100
=1.2
To understand the Price Elasticity of Coca Cola, we need to discuss some of the general categories of demand:
1. If a small % change in price results in a larger percentage change in quantity deman...
Elasticity is the responsiveness of demand or supply to the changes in prices or income. There are various formulas and guidelines to follow when trying to calculate these responses. For instance, when the percentage of change of the quantity demanded is greater then the percentage change in price, the demand is known to be price elastic. On the other hand, if the percentage change in demand is less than then the percentage change in price; Like that of demand, supply works in a similar way. When the percentage change of quantity supplied is greater than the percentage change in price, supply is know to be elastic. When the percentage change of quantity supplied is less then the percentage change in price, then the supply then demand is known to be price inelastic.
Demand can also be 'inelastic'. By inelastic demand we mean that that demand remain constant irrespective of change in price (refer graph below).
Beverage giant Coca-Cola wants to get a little love for its iconic cola drink from the upscale consumer set, so its decided to create and test-market a sleek set of contoured aluminum bottles for its flagship Coke brand. Yes, we said aluminum bottles.
Price Elasticity is the measure in responsiveness of consumers to changes in the price of a product or service. The evaluation and consideration of this measure is a useful tool in firms making decisions about pricing and production, and in governments making decisions about revenue and regulation. “Price Elasticity is impacted by measurable factors that allow managers to understand demand and pricing for their product or service; including the availability of substitutes, the consumer budgets for the product or service, and the time period for demand adjustments.” The proper consideration of Price Elasticity allows managers to set pricing such that the effect on Total Revenue is predictable and adjustments to production are timely. The concept of Price Elasticity is employed in the management of commercial firms and government.
All firms in this market work with the same price, which is why a change in price by a firm can cause a drastic change in their profits. Elasticity is the measure of how consumer demand will respond to a price change. Therefore, a perfectly competitive market is highly elastic, because any change in the price will affect the consumer demand for the good or service. Firms will avoid differing their price to other suppliers, because by doing so, costumers can easily take their business to any other firm, selling the same good or service. This type of situation creates a horizontal demand curve in a perfectly competitive market; the price will stay constant therefore the demand will also maintain consistency.
Therefore, the long-term brand of Coca cola and better pricing strategies would help in competing with Pepsi. Unlike, Pepsi, Coca cola had targeted entering into partnership and alliances with local distributors and firms. This helps to develop strong relationship within the domestic firms to reduce the domestic barriers and thus, enhance the company’s competitiveness (Thabet, 2015). Lastly, the Asian markets consist of related and supporting industries to the soft drink industry that helps the companies in gaining a strong competitive position in the markets. Based on the competitive advantage of nation’s model, Coca cola has more home based advantages to develop a competitive advantage in relation to other countries on a global
Coca Cola faces many costs when producing their products. These cost are usually categorized into variable costs and fixed costs. Variable costs are costs that vary depending on production output. Some examples of variable costs that Coca Cola incurs include labor, raw materials, packaging, and transportation and deliver cost. Raw materials are a major variable cost for Coca Cola. When production increases more materials are need to product more product therefore the cost for raw materials increases. The main raw material in all Coca Cola products is sugar which includes high fructose corn syrup, sucrose, and sugarcane. The availability of these natural resources often depend on weather conditions making for fluctuations
According to Microeconomics, Price Elasticity of Demand is the responsiveness of the quantity demanded to a change in price, measured by dividing the percentage change in the quantity demanded of a product by the percentage change in the product’s price (Hubbard & O’Brien, 2015). Demand is considered elastic when the quantity demanded for a product increases or decreases in response to price change. Normally, sales increase with price drops and decrease when prices rise. Coca Cola products are considered to have an elastic demand because quantity demanded for its products often change when prices change. If the price of Coke goes from $1.50 a bottle to $2.00 and the price of a 20 oz. Pepsi remains at or around $1.50
The law of demand states that if everything remains constant (ceteris paribus) when the price is high the lower the quantity demanded. A demand curve displays quantity demanded as the independent variable (the x-axis) and the price as the dependent variable (the y-axis). http://www.netmba.com/econ/micro/demand/curve/
Whitehead, J. (2006, May 8). Price elasticity of demand. Retrieved December 3, 2011, from http://www.env-econ.net/2006/inelastic_short.html
Elasticity is also prominent to businesses. The price elasticity of demand is very important for companies to determine the price of their products and their total sales and revenue. Newell showed that by cutting the price of the Left 4 Dead game in half to $25 during a Valve promotion, its sales increased by 3000 percent (Irwin, 2009)viii.
Walmart’s sports car toys price elasticity is 2.25. This shows that it is elastic as a change in price causes a change in quantity demanded that is greater than one percent. As the price decreases, total revenue is expected to increase. This is so because the demand curve slopes downward which means a decrease in price leads to increase quantity purchased and increased receipts. Since the change in quantity was greater than the change in price, the quantity has a stronger effect and will be able to offset the price effect.
One method that Toyota can consider is using the price elasticity of demand to determine whether to increase or decrease the sale price of their automobiles. The responsiveness or sensitivity of consumers to a price change is measured by a product's price elasticity of demand (McConnell & Brue, 2004). Market goods can be described as elastic or inelastic goods as change in quantity demanded for that good. If demand is elastic, a decrease in price will increase total revenue. Even though a lower price would generate lower sales revenue per unit, more than enough additional units would be sold to offset lower price (McConnell & Brue, 2004). In a normal market condition, a price increase leads to a decreased demand, and a price decrease leads to increased demand. However, a change in income affecting demand is more complex.
= When the price changes from 5 to 4 the price elasticity of demand is .8, meaning the demand curve is inelastic. Since the price elasticity of demand is less than 1, then the slope of the demand curve will be vertical. Consumers are less likely to be bothered by the price change and will continue to buy the product. Descriptive Exercise: Consider the following pairs of goods. Discuss which of them has a higher (in absolute value) elasticity and why.
That is, it is sensitive to price change, and also to the quantity demanded. This means that if many people are consuming a good, the demand is greater than if less people are consuming the good. To further clarify, take the example of attending college. In an environment where most of an individual's peers are going to attend college, the individual will see college as the right thing to do, and also attend college to be like his peers. However, in an environment where most of an individual's peers are not going to attend college, the individual will have a decreased demand for college, and is unlikely to attend.