Elasticity is a very important conception in economics. It is ‘a measure of how much one economic variable—such as the quantity demanded of a product—responds to changes in another economic variable—such as the product’s price’(Hubbard, Garnett, Lewis, and O’brien 2010). There are four different but relevant elasticities—price elasticity of demand, cross-price elasticity of demand, income elasticity of demand and the price elasticity of supply--shall be considered by decision maker of a company (Hubbard, Garnett, Lewis, and O’brien 2010). With good understanding of those elasticities, a company is capable of making a reasonable and adaptable marketing strategy.
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However, the question is by how much? The price elasticity of supply would help to answer that and the change in price could be predicted using price elasticity of supply (Hubbard, Garnett, Lewis, and O’brien 2010).
In real world, when marketing managers decide a strategy for a certain product, they would have to consider other elements which can determine the price elasticity of demand and supply (Farnham 2010). The price elasticity of demand shall be affected by the availability of close substitutes and we normally consider those companies produce substitute product as competitors. Generally speaking, changing in price of a company’s product could cause changing in quantity demanded of their competitors ’product. An increase or decrease in consumer’s income could impact the demand of a good as well. Cross-price elasticity of demand and income elasticity of demand will make the marketing managers possibly predict the trend of changing in those two elements. If the Falcon of Ford motor company reduce their price, the sales of commodore of Holden would be almost certainly affected as the demand of customer would be decreased. Cross-price elasticity of demand would measure the degree of reducing of the quantity demanded of commodore to a change in falcon’s price. Income elasticity of demand can measure that how the quantity demanded would response to change in customer’s income. Let’s take a look of the X6 of BMW Motor and the Getz of Hyundai. When car customers have an increasing income, they will be willing to buy X6 rather than buy Getz. As a marketing manager, one needs to understand the variables influencing consumer demand for their products as the consumers have a choice among competing products (Farnham 2010). The managers shall be fully aware of the strategies of their competitors and the economic state of the customers. Otherwise, the manager would fail to set up or adjust their strategies to suit the market. The price elasticity of supply would be determined by the ability and willingness of firms to alter the quantity they produce as price increases (Hubbard, Garnett, Lewis, and O’brien 2010). A company has their own limitation in production capability, so does the market. A market manager shall set up strategies based on a good understanding to their own production capability and the demand of the market. To do so, Elasticity is indispensible.
In China, when people talk about to open an own business, the first thought would be open a restaurant. The reasons are that it has a low barrier to enter and it produces food which is necessity to people’s life. China Food & Beverage Industry as a traditional pillar industry in China’s service sector, sales of food and beverage has maintained an annual growth rate of over 10% for 16 years (, January 2012 ). Behind this remarkable rate, cruel competition is hidding. China Food & Beverage (CFB) Industry would be a good example of a highly competitive industry....