Economics Assignment: Demand Elasticity and Business Strategy for CBA

This economics assignment analyzes the Commonwealth Bank of Australia (CBA), focusing on its business strategy and the elasticity of demand for its credit card products. The report examines the CBA's diverse financial services, including retail, fund management, and insurance, highlighting its position as a major player in the Australian market. The study delves into the concept of elastic demand, particularly concerning the impact of interest rates and income levels on credit card demand. It illustrates how changes in these factors influence consumer behavior, affecting the quantity demanded. The report further explores the factors impacting demand elasticity, such as consumer income and interest rates. Finally, it concludes by emphasizing the importance of integrating business strategies that consider the elasticity of demand to optimize profitability and customer satisfaction.

Running head: ECONOMICS ASSIGNMENT
Economics Assignment
Name of the Student
Name of the University
Author’s Note

1ECONOMICS ASSIGNMENT
Table of Contents
Introduction......................................................................................................................................2
Answer 4..........................................................................................................................................2
Conclusion.......................................................................................................................................4
References........................................................................................................................................5

2ECONOMICS ASSIGNMENT
Introduction
The present study focuses on the importance of business strategy in an organization. The
company chosen for this purpose is CBA or Commonwealth Bank of Australia. The CBA is one
of biggest Australian multinational bank that provides different kinds of financial services that
involves-retail, fund management, insurance, superannuation and broking services. The variety
of products offered by this bank are –corporate banking, mortgages, finance and insurance,
investment banking, private equity, credit cards. This study reflects on the demand elasticity for
the products or service provided by CBA. The study also highlights on the two factors that affect
elasticity of demand for the product.
Answer 4
Over the years, the CBA has struggled to maximize profits by providing banking services
or products that satisfy the customers demand. The CBA has developed huge range of products
to offer customers for depository account. Commonwealth bank is one of the biggest credit card
issuers in Australia that offers wide range of low fee, low rate and reward options. The demand
for credit card offered by CBA has been found to be elastic in respect of interest rate that is
charged (Beck and Brown 2015). The amount of loans has been found to enhance considerably

3ECONOMICS ASSIGNMENT
Quantity
Price
D
D
more than credit card loans mainly when interest rate declines. Elastic demand relates to more
change in consumers demand as price of products and services change (Laibson and List 2015).
This signifies that small rise in price of credit card leads to huge decline in quantity demanded
for this product. As CBA has been offering credit cards with low rate and fee, the demand for
credit card increases. If CBA offers credit card with high fee and high rate, then consumers
might stop consuming this product. Elasticity of demand for credit card is indicated by flatter
curve-
Figure 1: Elastic demand of credit card
Source: (As created by Author)
The two factors that impact the elasticity of demand for credit card offered by the CBA
are –
 Income level of consumers-The income level of Australians influences the elasticity of
demand of credit card. The rise in income level of consumers causes credit card items to
be highly elastic. If the Australian economy faces downturn, then average income level of

4ECONOMICS ASSIGNMENT
consumers might decline (Huynh, Schmidt-Dengler and Stix, 2014). However, several
consumers might opt to save money rather than purchasing credit card from CBA. This in
turn influences the elasticity of demand for credit card items.
 Interest rate- Rate of interest is inversely proportional to elasticity of demand for credit
card. Lowering annual rate of interest will attract risky consumers and enhance
delinquent loans at considerable higher interest rate than loans in common (Taussig
2014). The customers demand has been found to be highly responsive in terms of the
credit card plans. Thus, lowering interest rate leads to increase in credit card sale.
Conclusion
From the above discussion, it can be concluded that CBA must integrate business strategy
by focusing on elasticity of demand for the banking products and services. Since income level of
consumers and interest rate affect the elasticity of demand, CBA must focus on these two factors
before selling the credit cards to consumers.

5ECONOMICS ASSIGNMENT
References
Beck, T. and Brown, M., 2015. Foreign bank ownership and household credit. Journal of
Financial Intermediation, 24(4), pp.466-486.
Huynh, K., Schmidt-Dengler, P. and Stix, H., 2014. The role of card acceptance in the
transaction demand for money.
Laibson, D. and List, J.A., 2015. Principles of (behavioral) economics. American Economic
Review, 105(5), pp.385-90.
Taussig, F.W., 2013. Principles of economics (Vol. 2). Cosimo, Inc..