Impact of Price Elasticity on Pricing Decisions

The price elasticity of demand for Coca-Cola is discussed in the assignment content. It is stated that the supply increases downwards when the machine breaks down, leading to a decrease in the price of Coke. The availability of substitutes such as Pepsi and other aerated drinks also affects the price elasticity. The demand for Coca-Cola is shown to be less elastic than Pepsi, suggesting that it has a stronger brand preference. The impact of consumer responsiveness to price changes on the firm's pricing decisions and revenue growth is assessed. It is concluded that the firm needs to keep an eye on prices and consider the elasticity of their products in order to make informed pricing decisions.

Explore the supply and demand conditions for your firm’s product.
a) Evaluate trends in demand over time and explain their impact on the industry and
the firm. You should consider including annual sales figures for the product your
firm sells
The aim of assessing trends is to decide whether individual can apply them to forecast upcoming
transformation moreover whether a fastidious trend has some significance for individual’s firm.
Now trend in demand is not just dependent on the utility or need of thee individual, it also
depends on other external factors like income, price in economy , government tax collection
policy , supply. Now as we know supply creates it own demand and since we have the elasticity
of goods demand analysis is not a cetris peribus analysis. When individual recognize a trend
which impacts individual’s marketplace or individual’s processes, individual can arrange some
activities that contradict the trend. Individual have to assess the range, route and path of a trend
previous to individual can respond to it. Now when we look at the short run and long run the
companies have different objectives like sales maximization in short run but profit maximization
in the long run.

The graph shows the trend of the revenue growth of Coca Cola , recently there has been decrease
which is very problematic for the company and therefore further we will look at the suggestions.
Total customer expenditure (TE) is a further critical purpose of price elasticity of demand. It will
be the alike as total revenue (TR) received through firms before removing expenses.
Elasticity is defined not just with good but with the type of good. If the goods are kind of
addictive goods then the preferences are generally inelastic. Where as when we have lots of
substitutes available then elasticity is generally high. For example if we consider the ITC
company , they make ciggrates which have inelastic demand , so even if they increase price the
demand is generally not going down in proportion. If the price is increased by 10 % , we see that
the quantity decreased is just 2 % , so the elasticity would be 2/10= 0.2 which is low. Where as if
we consider some product like call rates , then people will talk judiciously so with 10% increase
in price we have 8 % decrease in consumption, so elasticity is 0.8
So the graph here shows that the

With the inelastic demand the revenue collected will be high because even with high price
change the quantity would not decrease much.
So when we look at the trend in demand , if there is general increase in demand , then the prices
are likely going to increase in near time which would then increase the pressure on the demand
to go down in next period. So it will be a fluctuating cycle but generally in the long term we will
se because of inflation a higher set amount of prices but lower than the expected prices.
a) Analyze information and data related to the demand and supply for your firm’s
product(s) to support your recommendation for the firm’s actions. Remember to
include a graphical representation of the data and information used in your analysis
The demand along with supply of commodities is at the same time as a consequence of a variety
of aspects which have an effect on it which it takes in the cost of the commodities, consumers go
through and first choices, price of production, usual circumstances, transportation situation as
well as government guiding principles. This factors control demand in addition to supply
absolutely or pessimistically. So , when we consider that supply of the product coca-cola , we
also see what the competitors are producing. The final product of ours is based on many

intermediate products which if have high cost over time would lead to increase in cost of
production. Also we know that there is a scaling effect in the production. When we have limited
appliances to produce and then if we have higher demand to produce the efficiency of the
machines would reduce , then we have to employ additional machines , which in order would
increase the per product cost. So predicting supply in near time is not an easy task and even if we
have predicted it then supplying it in given cost is more tedious task. So if the demand is high we
need to install more inputs for production and we need to check the proportional cost per input vs
revenue per product. If we have increasing scale of production then it is good to produce higher
but if its not then its better to produce at high price.
So when the demand for the coke increases , the demand curve shifts to right and given in
the short span the supply is fixed and thus the price of coke is increased, but when there is
excess supply in coming time when there is ample machine , the supply increases
downwards and thus the price of coke comes down. Also we have many substitutes so there
cant be very high price in the market. Like even with high demand the price of coke
remains like 1/6 dollars.

III. Examine the price elasticity of demand for the product(s) your firm sells.
a) Analyze the available data and information, such as pricing and the availability of
substitutes, and justify how you determine the price elasticity of demand for your
firm’s product
Demand curvature refers to the amount of the superior that a purchaser is enthusiastic to
purchase as well as capable to purchase above a period of moment, at a convinced price is
identified as the amount required of that first-class rule of require: It is usually showed as an
opposite relation of amount demanded as well as price; the superior the cost of the invention, the
fewer of the customer will require From the outline we be able to articulate that while the cost of
invention enhances require decreases and vice versa. In folder of coca cola there are numeral of
replacement goods obtainable in the marketplace, we contain Pepsi, Limca, spirit, Miranda, etc.
at the present if the cost of coca cola enlarges as of Rs 12 to Rs 20 while the cost of additional
aerated drinks stay the similar then the require for coca cola will descend. So to determine the
price elasticity we also need to check the cross price elasticity because we have lots of substitutes
available in the market. So we need to check the increase in demand for coca cola with the
increase in price of substitute commodity by 1 unit. Through this we can capture the taste of the
consumer . Similar thing can happen with us as well so we need to check tht what if we increase
the price in the market. If we have to compete we have to keep our prices competitive , we can
not end in a price war because if we promise a very lower price we can not provide them below
the cost of production. So we need to check the demand at different prices which can be
observed from the demand and price of competitors.

The table represents that coke is more preferred and is less elastic as compared to pepsi which
can be seen by price elasticity of demand.
b) Explain the factors that affect consumer responsiveness to price changes for this
product, using the concept of price elasticity of demand as your guide
At this time is a straight relationship among profits of customer and require. At the present coca
cola being a standard good, but there’s an enlargement in profits, the requirement will enlarge as
well as vice versa. Flavor as well as partiality Taste and preferences of the clients also pressure
for the requirement to superior level. In folder of coca cola, if there are solid core customers who
desire the flavor of coca cola, still if the value of coca cola amplify, the require will stay the
similar. Other than if the customers contain no taste otherwise preference of coca cola, after that
if the cost increases the require decreases.
Elasticity is defined not just with good but with the type of good. If the goods are kind of
addictive goods then the preferences are generally inelastic. Where as when we have lots of
substitutes available then elasticity is generally high. For example if we consider the ITC
company , they make ciggrates which have inelastic demand , so even if they increase price the
demand is generally not going down in proportion. If the price is increased by 10 % , we see that
the quantity decreased is just 2 % , so the elasticity would be 2/10= 0.2 which is low. Where as if
we consider some product like call rates , then people will talk judiciously so with 10% increase
in price we have 8 % decrease in consumption, so elasticity is 0.8
The figures shows that Coke will always try to put price very slightly less than its main
competitor Pepsi. The income elasticity shows that, when income increases people demand Pepsi

which means that they consider it as more of high quality product. So this shows that the coke
always keeps its price less than price. Also we see that when the price of coke increase, demand
for pepsi does not increase that much compared to vice versa.
c) Assess how the price elasticity of demand impacts the firm’s pricing decisions and
revenue growth
While goods are replacement of every other then the irritated elasticity of requirement is
optimistic. E.g. if the cost of coca cola amplify, this will guide to enlarge in the requirement for
other aerated beverage. If the value of coca cola amplifies as of Rs 5 to Rs 6 followed by the
requirement for coca cola will enlarge from 40 to 50 units it explain the method in which
customers acquire a few first-class as a consequence of modification in his earnings.
Revolutionize in Demand% transform in Income because there is an optimistic connection
between proceeds of the customer and amount require for coca cola, so we be able to state to
facilitate coca cola is a standard good.

So if the firms are producing products which don’t have much competitors then they don’t
have to care much about the elasticity but that’s not the case here so firms need to keep
check on prices, if the firms can provide price just higher then the cost of production , then
can capture all the market because of high elasticity of product. But if they keep price high
then there might be possibility of loosing market share in the short run , so it depends on
the quality in the long run then the price or elasticity. So for the short run the firms target
the elastic goods but for long run they target inelastic goods to generate profits.
References
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