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The Influence of the Law of Demand and Supply and the Price of Elasticity of Demand

2019-05-15 来源: 51due教员组 类别: Essay范文

下面为大家整理一篇优秀的essay代写范文- The Influence of the Law of Demand and Supply and the Price of Elasticity of Demand,供大家参考学习,这篇论文讨论了需求与供给规律、价格弹性对需求的影响。在制定定价策略时,公司必须对需求规律有一个扎实的了解,并且考虑到供给定律,当商品价格高时,生产者倾向于生产更多的商品,因为以更高的价格卖出更多的商品有助于增加收入。另外,需求弹性价格告诉我们价格的变化如何影响需求量。对需求规律、供给规律和需求价格弹性有一个扎实的了解,可以帮助公司更好地预测不同定价策略的潜在结果。

Law of Demand and Supply,Price of Elasticity,essay代写,作业代写,代写

When considering a company’s business performance, profitability is one of the most important factors. Profitability is mostly influenced by revenue and cost. Therefore, if a company wants to enhance its performance, it should find out ways to maximize revenue and minimize cost.

Revenue is determined mainly by two important factors, price and the amount of units sold. As the law of demand suggests, if all other factors don’t change, the higher the price, the less people will demand that good (Hayes). Therefore, when a company is making pricing strategies, the company has to have a solid understanding of the law of demand. The decision makers should realize the fact that although a higher price can lead to a higher margin, a higher price can also cost a lower total revenue. However, if the high margin is able to compensate for the lost amount of units sold, the company may consider produce less and price high since usually the less produced, the lower the cost. To sum up, the company needs to forecast the demand of the price, and then make a decision based on the estimated revenue of different combination of price and demand and the related cost. For example, a pen manufacturer can sell its pen at $5 or $2 per unit. Assuming that the manufacturer is able to sell 200 units at $5 and 500 units at $2. Thus, the manufacturer can get a revenue of $1000 each way. Considering the cost related, the manufacturer can get a higher profit when sell its pen at $2. Nonetheless, if the company cares more about its market share, then selling the pen at $2 can also be a good solution to maximize its revenue. 

According to the law of supply, when the price of a good is high, producers tend to produce more because to sell more at a higher price can help increase revenue (Hayes). However, if all the producers increase the production of the goods, the supply will reach and even outnumber the demand. As a result, the price will drop.  What’s more, if a company fails to sell all the good in time, the company will incur different kinds of cost, like storage fees, production fees, damage and so on. Therefore, the profit will decrease. To avoid increasing cost due to the drop of demand, the company needs to forecast whether the high price of the good will be permanent or temporary. If the high price of the good won’t last long, the company needs to calculate whether the increase in profit can compensate for the increased cost. If the high price of the good is permanent or repetitive, the company can design a production pattern to meet the demand pattern.

The price of elasticity of demand tells us how the change of price influences the amount of demand. If a product is price inelastic, then the company may be able to charge a higher price without worrying a lot about losing sales. However, if a product is price elastic, the company needs to be very cautious in increasing price because a small increase in price may greatly decrease the amount of units sold.

The price of elasticity of demand will change due to a lot of factors. For example, for a FMCG company, its products are usually price elastic since there are countless substitutions available in the market. However, the company can decrease its price elasticity of demand through effort in branding. Marketer of the company can work hard to switch the company’s products from price elastic to price inelastic (Gallo). By training customers into loyal customers or increasing the cost of switching products, the products can be more irreplaceable for its customers. The change of price of elasticity can be a standard to measure marketers’ performance.

Price inelastic goods may become price elastic over time. For instance, oil is usually regarded as a price inelastic goods because people can hardly dramatically decrease their oil consumption in a short period. Therefore, even complaining about the price increase, consumers still need to use oil. However, if the oil price keeps increasing, consumers may try to switch a source of energy or figure out ways to decrease its oil consumption. As a result, the demand of oil will gradually decrease with a growing decreasing rate. Therefore, for companies that produce price inelastic goods, they need to consider both the short-term and long-term influence of their pricing strategies.

To conclude, a solid understanding of the law of demand, the law of supply and the price elasticity of demand can help a company better forecast the potential results of different pricing strategies.

Reference

Gallo, Amy. A Refresher on Price Elasticity. August 21, 2015. December 2, 2017. https://hbr.org/2015/08/a-refresher-on-price-elasticity

Hayes, Adam. Economics Basics: Supply and Demand. December 2, 2017. https://www.investopedia.com/university/economics/economics3.asp

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