Price_Elasticity_Scenario

Running head: WILL BURY PRICE ELASTICITY SCENARIO Will Bury Price Elasticity Scenario NAME University NAME January 28, 2009 ECO561 / Economics Will Bury Price Elasticity Scenario Will Bury is an inventor who has developed technology that will transform printed word for books and create a file that provides the option of digital reading or listening to it with a life-like voice (University of Phoenix, 2009). Will believes that the future of reading books in hard copy will evolve into reading or listening to books digitally. The use of his new technology and his vision of the future leads Will to determine how to best enter into the seller’s market. Market Research To determine who, what, where, when and how, Will should conduct market research to identify what customers have purchased in the past and what situational changes have occurred to alter not only what consumers want now but also what they are likely to want in the in the future (Nickels, 2008, pp. 348-373). Market research will also solicit feedback from potential buyers on how often they read books and how much they are willing to pay in order to acquire these new products. Consumer profiles will also identify the incomes of individuals who are willing and able to pay higher prices for this technology. In addition to determining the consumer demographics, Will should investigate the competitive layout of the market to determine product pricing, distribution, communication, and promotional strategies. Product Demand McConnell and Brue (2005) stated, “The basic determinants of demand are (1) consumers’ tastes (preferences), (2) the number of consumers in the market, (3) consumers’ incomes, (4) the prices of related goods, and (5) consumer expectations about future prices and incomes” (McConnell and Brue, 2005). The market study conducted by Will provides necessary information in making decisions on what price to charge for these items, the buying patterns of the consumer, what advertising strategies to deploy, future promotional strategies to implement to increase consumer purchasing, and how best to distribute these products. Product Supply McConnell and Brue (2005) stated, “We assume that price is the most significant influence on the quantity supplied of any product” (p. 46). “Determinants of supply include resource prices, technology, taxes and subsidies, prices of other goods, price expectations and the number of sellers in the market” (McConnell and Brue, 2005). Will’s resource considerations include the equipment to use to produce the product, manpower to run the equipment, training, production location and mode of distribution. Each of these areas contributes to the cost of the product and can affect the future price if the prices of these resources increase. Import and export feeds will need to be included if the decision will to be produce the goods overseas. A shift in the price of any of these items can affect the quantity supplied to the market. Price Elasticity McConnell and Brue (2005) define price elasticity as the responsiveness of consumers to changes in the price of goods. Will has been conducting research on the effect of price on volume demand. This concept is known as price elasticity of demand. Will found when the price of video tapes changed from$80 to $20 per title there was a significant increase in volume sales. Based on his findings, Will should conclude that if price is elastic, a decrease in price will show an increase in quantity demanded and potentially an increase in total revenue. An increase in price may cause a reduction in the quantity demanded and a reduction in total revenue. This concept will be helpful for Will to best determine the launch price based on his test market on the Web site. After conducting the market research study, Will has sufficient information to determine his pricing strategy. Applying a few of the basic economic principles of the law of supply and demand and price elasticity will also help determine how any changes in price, demand and supply will affect the overall profitability of his new endeavor. References McConnell, C. R., & Brue, S. L. (2005). Economics: Principles, problems, and policies (Sixteenth ed.). New York: McGraw Hill Irwin. Nickels, W. G. (2008). Chapter 13: Marketing: Building Customer Relationships. In Understanding business (pp. 348-373). New York: McGraw Hill. University of Phoenix. 2008. University of Phoenix material: Will Bury Price Elasticity Scenario. Retrieved January 26, 2009, from University of Phoenix, Week One, ECO/561 – Economics Course Web site.