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Running Head: ECONOMIC PRINCIPLE AND DECISION MAKING 10 10 Economic Principles and Decision Making Name of the University Student Name

   

Added on  2021-04-17

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Running Head: ECONOMIC PRINCIPLE AND DECISION MAKING Economic Principles and Decision MakingName of the StudentName of the UniversityAuthor note
Running Head: ECONOMIC PRINCIPLE AND DECISION MAKING 10 10 Economic Principles and Decision Making Name of the University Student Name_1
ECONOMIC PRINCIPLES AND DECISION MAKING 1Table of ContentsProblem A..................................................................................................................................2Answer 1................................................................................................................................2Answer 2................................................................................................................................2Problem B...................................................................................................................................2Answer 1....................................................................................................................................2Answer 2....................................................................................................................................3Answer 3....................................................................................................................................5Answer 4....................................................................................................................................6Problem C...................................................................................................................................6Answer 1....................................................................................................................................6Answer 2....................................................................................................................................7Reference list..............................................................................................................................9
Running Head: ECONOMIC PRINCIPLE AND DECISION MAKING 10 10 Economic Principles and Decision Making Name of the University Student Name_2
ECONOMIC PRINCIPLES AND DECISION MAKING 2Problem A Answer 1The aspect of demand elasticity is one of the crucial aspects in decision making of anybusiness. Demand elasticity indicates the extent of change in demand proportion following achange in different demand determining factors. Demand and hence sales of a businessresponds the most for a change in own price of the product, income level of buyers and priceof its competitor’s product (Carbaugh, 2016). The different type of elasticities named as priceelasticity, income elasticity and cross price elasticity are important for Schmeckt Gut whileintroducing Basser energy bars in the market The own price elasticity stands as a measure to capture proportionate change indemand for a corresponding change in price. Based of relative responsiveness of demand,demand is classified as elastic, inelastic and unitary elastic demand. For a relatively elasticdemand the proportionate change in demand is greater than change in price. Reverse is thecase for a relatively inelastic demand. Demand here adjusted less in response to price. If thechange in demand is exactly same as the change in price, then demand is unitary elastic innature. The nature of demand elasticity plays an important role in pricing decision through itsimpact on revenue (Hammock & Mixon, 2016). If the company observes that the energy baris relatively elastic in nature, then it should charge a low price as this will increase revenue ofthe company. If demand is found to be relatively inelastic in nature, then the companybenefits from increasing its price. Therefore, the own price elasticity of demand helps thecompany to determine price of the energy bar.Income elasticity measures the responsiveness of demand with respect to income.This will help the company to learn about people’s tendency to change their demand ofenergy bars when income changes. If demand is relatively income elastic in nature, then this
Running Head: ECONOMIC PRINCIPLE AND DECISION MAKING 10 10 Economic Principles and Decision Making Name of the University Student Name_3
ECONOMIC PRINCIPLES AND DECISION MAKING 3means people have a greater preference for energy bars (Carbaugh, 2016). Intriduction ofBesser energy bar in such a market is obviously beneficial for the company. The most important elasticity measure to be considered is the measure of cross priceelasticity. The new Besser energy bars can be either complementary or substitute of thealready existing energy bars. If it is introduced as a complementary product, then demand ofthe energy bars moves in opposite direction of price of already existing bars. The cross priceelasticity is negative here (Gillespie, 2014). On the other hand, if the newly introduced barappears as a substitute of its own energy bar or competitor like Fly High’s energy bars thencross price elasticity is positive. This implies the price of competitor product and its owndemand will move in the same direction. Answer 2The Research department needs to collect information of respective elasticitymeasures of energy bars in the market. The estimation of elasticity requires sufficientinformation regarding change in demand with respect to change in own price, income of localpeople and price of the competitors’ product. The historical data on changes of demand forrespective changes of these indicators are required to be collected to have an idea in themarket. The product can be smoothly introduced in a market where demand is relatively lessprice elastic and relatively more income elastic (Stoneman, Bartoloni & Baussola, 2018). Alower value of cross price elasticity means Besser energy bar is relatively less affected bychanges in price of the complementary or substitute good which is a positive sign for thebusiness. The Board should crucially evaluate the elasticity measures of the concernedproduct in order to introduce the new energy bar without much hurdles.
Running Head: ECONOMIC PRINCIPLE AND DECISION MAKING 10 10 Economic Principles and Decision Making Name of the University Student Name_4

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