Management Economics: Demand, Equilibrium, and Pricing Policy of Toyota

This report analyzes the demand and market equilibrium of Toyota's luxury car, Prius, and the factors affecting it. It also evaluates the elasticity of demand and the pricing policy employed by the company.

MANAGEMENT
ECONOMICS- 1

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY...................................................................................................................................1
Describe the business and its main product or service................................................................1
Identify the demand and market equilibrium which influenced the demand of their products.. 2
Indicate the elasticity or more elasticity of demand for the given factors..................................5
CONCLUSION ...............................................................................................................................7
REFERENCES................................................................................................................................8

INTRODUCTION
Economics is the subject study of understanding the production, consumption and
transfer of wealth in the marketplace which ensures effective growth and development to the
economy. Management economics focuses on problem solving and decision-making by apply
appropriate theories which helps in understanding the business environment(Bell, 2020). There
is huge impact and influence of demand and supply in the market due to change in the price of
the commodity then demand for the commodities deceases due to high prices. This report is
based on Toyota,It is the multinational auto mobile company and their headquarter is in Toyota
City, Aichi, Japan. The company is founded by Kiichiro Toyoda in 1937. this report will cover
the demand and effects of various factors on demand of the goods and services. This also
evaluate the nature of the product in terms of elastic or inelastic and lastly analyse the different
pricing policy that benefits the firms for generating higher profits.
MAIN BODY
Describe the business and its main product or service.
Toyota is the automotive company in Japan and it is one of the largest manufacturer of
automotive in the world and generate the revenue of € 27 million(Jolly and Clonts, 2020). They
are offering the premium quality cars. The company is also listed in London Stock Exchange and
also in Tokyo Stock Exchange.
Chosen product:
The chosen product for the company is Toyota Pirus as these are the luxury product of
the company which is available on the customised demand for the customers and the demand for
these goods are majorly depends upon the income level of the consumer, they usually launch the
premium product which incurred huge cost. Hence, there is no change in the demand of such
goods due to change in their prices.
Explantation of choosing that product:
Toyota is known for their premium cars and Prius is the latest model which is launch by
the company in the year of 2021 so this helps in understanding the demand for such goods by
doing market research so that company can attract the large group of upper class customers who
is having sufficient purchasing power in the market. Luxury cars are majorly owned by the
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people who wants to maintain their status by owing premium car and having interest in owning
the car.
Identify the demand and market equilibrium which influenced the demand of their products.
Demand refers to the desire of the individual over the particular product and also having
willing to pay for the commodity as these shows the buying preferences of the individual over
products and services.
Law of demand states that there is inverse relationship between the price and the demand
of the goods and services and other factors remain constant. When the price of the commodity
increase then the demand for the goods decreases and vice-versa. In context to Toyota Prius,
these are the luxury product of the company and there is no such change in the demand of the car
due to change in the prices of the car. Luxury goods comes in the expectation of law of demand
and this concept is not applicable for luxury goods. The main factors which can effect the
demand of the Toyota Prius car is income as increase in the income tends to increase the demand
for such goods and decrease in the income lower the demand for the luxury car.
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Equilibrium is the state when the demand of the commodity is same as the supply of the
product and service by the firm. As there is no different between the demand of the market and
supply of the manufacturer as they are full filling the need and wants of the potential customers.
This means there is no change in the income of the consumer, price of substitute, price of
complementary and taste and preferences of the individual. When the demand of the certain
goods increase due to decrease in the price and when the demand for the goods decreases due to
increases in the prices and this phenomena effects market equilibrium. In relation to ToyotaPrius,
this is the luxury product so there is no change in demand due to change in the prices of the car.
The company is working is as per the demand of or the pre-order basis, they do not do the over
production. Various factors which effects the demand for the commodity are explained as
follows:
 Price of substitutes- These are the goods which can be replaced with the other product
available in the market but in case of luxury goods, the law of demand fails as there is no
change in the demand of the product due to change in its prices (Zhang, Hassan and
Iqbal, 2020). In case of Toyota Prius, this this the top model of the company and there is
no substitute in the market as they are offering premium cars which is totally depends
upon the income level of the consumer.
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 Price of complements- these are the goods which can used as the conjunction of another
product or they can be used together. The complementary good for the car is fuel as
fuelled car can not be run without petrol or diesel so it effects the demand of the cars.
When the prices of the fuel increases then the demand for the car decrease due to rise in
the prices of fuel, people will spend less on fuel. On other hand, when the prices of the
fuel decreases then the demand for the car increases as people will love to spend on the
fuel by which they can cover the huge distance in less fuel.
 Consumer income- It is the basic compensation or the salary of the individual that is
being earned by doing job or owning to their business. For instance, when the people is
having sufficient income level then they can buy expensive goods but when they are not
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having sufficient income level so they will stick to normal or inferior goods. In context to
Toyota, when consumer is having sufficient purchasing power then the demand for the
car increases. On other hand, if they are not having enough purchasing power so thy will
no approach to car and demand for the car decreases.
 Consumer taste and preference- These are the factor which reflects the choices and the
buyer preferences of the consumer for buying the specific goods and services. When the
taste and preferences of the consumer are in favour for the goods ad services then the
demand for such goods increases. On other hand, if the taste and preferences of the
consumer are not in favour of the goods then the demand for goods decreases. In context
to Toyota Prius, when buying behaviour or the interest of the consumer are favouring of
the car then the demand for the car increases and if consumer have changed their
perception of not harming the environment by using fuel so demand for the car decreases
as it is complimentary goods for car.
 Demographics- These are the number of potential customer who are loyal to the specific
company and making the effective purchase for the goods and services (Duft and Durana,
2020). Upper class are the target people for the Toyota as they are offering luxury
products and people is also having sufficient purchasing capacity in order to purchase the
goods and services. This also helps the business to have higher profits. When taking
about the luxury cars then the majority of the people is having the interest for owning the
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premium car for maintaining their status as well. Majority of the people aged between 30-
50 groups is looking for automotive vehicles.
It is evaluated from the above discussion that change in the income level of the consumer
impact the demand of the cars as it is cleared that people having sufficient purchasing power then
only thy can buy the expensive cars. Here, law of demand fails because cars belongs to luxury
goods where there is no such impact of change in the demand of car due to changes of their
prices. They are the status symbols for the society which is being used by the society which
incurred huge income from the consumer for making the better choices of premium cars.
Indicate the elasticity or more elasticity of demand for the given factors.
Elasticity of demand is defined as the change in the consumption of the commodity with
the change in the price of the commodity due to change in the various factors that is affecting the
demand of the commodity. It is written as:
Price Elasticity of Demand= % change in Quantity demand / % change in price
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This is the formula which is being used by the many economics which understand the
change in the demand in respect to the change in its prices. There are various factors which is
having major impact on the demand of the commodity in the target market(Fellows, and Liu,
2020). There are few commodities which is having impact with the change in the demand due to
change in their prices. For example, luxury goods they are inelastic in nature as when the prices
of cars increases then there is no change in the demand of the company so that they can have the
better understanding in the market. In context to Toyota, when the prices of the Luxury car
increases then the demand for such goods remains same as these are the luxury products in the
market. People is having great interest in Toyota cars which can leads to increase the demand for
car and demand for car is inelastic as there is no such impact on the demand with the change in
their prices and customers is having less options for buying premium cars.
 Substitution effects: These are the products which can be replaced by other product
which are giving same level of satisfaction. Forms do effective market research so that
they can full fill the market demand and maintain the customer base. When the price of
the substitute goods increase then the demand for the current product increases. On other
hand, when the prices of the substitute goods decrease then the demand for the current
product also decreases as other firming is offering the product the product at affordable
prices so customer will stick to the same brand/product. In context of Toyota, they are
offering premium cars and they are the luxury products of the company so there is no
such impact of change in the prices the demand for goods remains the same and law of
demand is not applicable for such goods. Demand of such products is positively related to
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their prices as more people will seek to buy cars when the prices are high. They mainly
focuses on the services offered and the model of cars.
The demand for cars is inelastic as there is no such change in the demand of the car with
the change in their prices.
 Income Effects: It is the basic salary or the compensation which is being eared by the
individual doing some sort of job or owning to business. When the income of the
consumer increases then the demand for the goods also increases(Sierra, 2020). There is
positive relationship between the price and the demand of the commodity. In context to
Toyota, When the consumer is having higher income level then demand for car necessary
as more people will buy luxury cars and if the consumer is not having sufficient income
level then the demand for such goods deceases and people will no able to buy the such
cars.
Income percentage spend on the purchase of car is high as these are the luxury goods and
consumer have to pay more fir the premium cars. These are the products which is being preferred
by the upper class group as they are having sufficient income level and the capacity to be sent on
the purchases of car and maintain their status by having premium cars.
What is the pricing policy that business employs and why?
Industries are using different pricing policy as they do not stick to the particular policy
according to the market scenario and the changing demand of the customers. There are some
factors which shows the requirement of changing the pricing policy of the company as cost of the
particular location, need of the target market and the income level of the consumer. These are the
factors which help the companies to choose the appropriate pricing strategy so that they can
ensure higher profitability in different market locations. Different pricing policies are given
below:
 Price discount and allowance: These are the policy which is being offered as the reward
to the customer for their early payments, bulk buying and the making instant payment to
the customers. They also includes cash discount which is being given to the customers so
that they can make the effective purchasing in the market.
 Geographical pricing: These are the pricing policy that is being used by the
organisations according to the different market locations so that they can serve the large
market segment. This helps them to set the different pricing policy so that they can cover
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the different market location by fixing different prices of the product according to the
demand in the particular market. This helps in making generating the higher profits so
that they can sustain in the competitive market.
Is is observed for the above discussion that Toyota must use the price discount and
allowance price policy so that they can cover the large market and ensure higher profits.
CONCLUSION
It is concluded from the above report that demand and elasticity are the significant factors
which ensure the functioning of the market and selling and buying of goods. This report is based
on the luxury goods and these are the expectations in the law of demand in which there is no
change in the demand due to change in its prices. There are various factors which is having
major effect on demand but income is the main factors which can decide the demand of the cars
as people having sufficient purchasing power then demand for goods increases. there are various
pricing policy which is being adopted by the business as per the market conditions but company
is using price discount and allowance policy so that they can attract large group of potential
costumer.
REFERENCES
Books and Journals
Solozhentsev, E. and Karasev, V., 2020. The digital management of structural complex systems
in economics. International Journal of Risk Assessment and Management, 23(1), pp.54-
79.
Jolly, C.M. and Clonts, H.A., 2020. Economics of aquaculture. CRC Press.
Patel, P. and et. al., 2020. Biophysical economics and management of biodiesel, a harbinger of
clean and sustainable energy. International Journal of Energy and Water
Resources, 4(4), pp.411-423.
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Bell, E., 2020. Cognitive automation, business process optimization, and sustainable industrial
value creation in artificial intelligence data-driven internet of things systems. Journal of
Self-Governance and Management Economics, 8(3), pp.9-15.
Zhang, J., Hassan, S.T. and Iqbal, K., 2020. Toward achieving environmental sustainability
target in Organization for Economic Cooperation and Development countries: The role
of real income, research and development, and transport infrastructure. Sustainable
Development, 28(1), pp.83-90.
Davis, R. and et. al., 2020. Industrial artificial intelligence, smart connected sensors, and big
data-driven decision-making processes in Internet of Things-based real-time production
logistics. Economics, Management and Financial Markets, 15(3), pp.9-15.
Duft, G. and Durana, P., 2020. Artificial intelligence-based decision-making algorithms,
automated production systems, and big data-driven innovation in sustainable industry
4.0. Economics, Management and Financial Markets, 15(4), pp.9-18.
Fellows, R. and Liu, A.M., 2020. Borrowing theories: contextual and empirical
considerations. Construction Management and Economics, 38(7), pp.581-588.
Sierra, J., 2020. The importance of simulation in teaching and learning economics: The students’
perspective. Innovations in Education and Teaching International, 57(5), pp.521-531.
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