Graphics Number The price of apple iPod and the quantity demanded Price Quantity $200 12,000 $40011,800 $600 11, 600 $800 11, 400 $ 1,000 11,200 Demand curve 1) Do you think your product or service elastic or inelastic? Midpoint elasticity /=midpoint elasticity (Krugman & Wells, 2006). = / =/ =* = = 0.0435 The iPod has an inelastic demand. This is shown by the value of the point elasticity, which is below one but more than zero. This is an indicator that the percentage change in demand is less that the percentage change in price. It means that the demand is for the iPod is not likely to change much with change in prices. 2) Other than price, why is your product or service elastic or inelastic?
What makes your product or service unique? Other than price there are other factors that determine the elasticity of demand. These are such as the type of good, the availability of the substitutes for the goods, and the income that it costs the buyer to acquire the good (Krugman & Wells, 2006). Apple iPod inelastic demand may be attributed to the fact that it lacks strong competitive substitutes.
The Apple iPod is considered unique as it has been added features and its prices have been adjusted accordingly as compared to other iPods. The Apple Company has been consistent on the pricing and the features of a number of iPod models. 3) Is the firm doing a good job with their current strategy to increase sales, profits and market share or are they doing a poor job? What recommendations would you make to the firm’s management (if any) to improve their pricing strategy? The firm is doing a good job in their current strategy of increasing sales, profits and market share as they have made the iPod unique in a number of ways.
This makes it to be competitive in the market. Also, the company has built the product to have features that essential to the consumers, which lack in most of the competitors’ products. I would advice the firm to have prices that are consistent so that even if the iPod has inelastic price, the impact of the price on demand may not result to an elastic demand in the long run.
4) Can you list three or four important factors (e. g. demographics, customer’s average income) that are critical in order to properly analyze your demand curve? Why should the firm’s management be concerned about analyzing these factors? In this case, there are critical factors that are required so as to analyze the demand curve. These are the availability of substitute goods, the amount of income that is consumers have to spend on the iPod, the type of good sold and time. It is important to look at the substitutes since the more substitutes that a product has, the more elastic its demand will be.
The amount of income a consumer has to spend on a good is vital since if the price goes up and the income is the same, the income that is available to spend on the good becomes less. This affects the demand of the good (Krugman & Wells, 2006). The type of good whether it is a necessity or a luxurious good is important as with the necessities consumers have to buy but they adjust their need for luxurious goods with price.
Time is an important factor to be considered as all goods can change to be elastic with time. This is possible as with time it is possible for consumers to get substitutes or even learn to do without the good (Krugman & Wells, 2006). 5) Are there any other observations that you would like to make about your demand curve analysis? Price elasticity ought to be considered when developing a strategy for pricing and marketing of goods.
At the end, it should be remembered that pricing is a process that has to be part of a firm’s trajectory. Reference Krugman, P. R., & Wells, R. (2006). Economics. New York: Worth Publishers.