Economics for Managers - Unit 11 Essay: Elasticity and Decisions

This essay delves into the core economic concepts of elasticity, marginal analysis, and opportunity cost, providing a comprehensive analysis of their impact on business decision-making. The essay begins by examining the elasticity of demand for both elastic and inelastic goods, predicting changes in demand based on price fluctuations. It then explores how marginal analysis, by avoiding sunk costs, leads to more effective pricing strategies, and emphasizes the importance of opportunity costs in shaping business decisions and driving trade. Furthermore, the essay evaluates how sound business decisions benefit not only producers but also consumers and society at large, contrasting the ethical approaches of deontology and consequentialism in this context. The analysis covers real-world examples of soft drinks and salt to illustrate the concepts. The essay provides a deep understanding of economics.

Economics for Managers Unit 11
essay

TABLE OF CONTENTS
INTRODUCTION......................................................................................................................3
REFERENCES...........................................................................................................................6

INTRODUCTION
Pricing is the most powerful tool but it is often neglected. This essay will present
about the information retrieved in the process of researching elasticity information pertaining
to two specific goods in which one is elastic and the other one is inelastic in respect to
demand. Using this information, an attempt will be made to predict changes in demand, along
with marginal analysis helps in better pricing decisions. It will also cover the importance of
opportunity cost and the way effective decision can benefit both producer and the consumer.
In addition to this, it will involve contrast with the deontology and consequentialism
approaches to ethics.
Goods with Elastic and Inelastic Demand
A good is considered to be having elastic demand where the price of the good will
increase or decrease, the demand will follow the same. While a good with inelastic demand
may see a change in price with no or little change in the demand of it. In terms of researching
goods which are elastic and inelastic, the selected one’s are soft drinks and salt (Cunningham,
2021). With the increasing concerns over health and with the available evidence that the soft
drinks are not good for health but still it is consumed at a higher rate. The soft drinks are
having the price elasticity of nearly -1.06 while the salt is having a price elasticity of 0.1. this
indicates that the with 10% rise in the price, the soft drinks will generally see a 10.6%
decrease in the overall demand but on the hand, in case of salt, it will see a 10% increase in
price which will result into decrease in demand by 1%.
Marginal Analysis
The marginal analysis accounts for the examination of the add on benefits pertaining
to an activity in comparison to the additional costs which is required to be incurred on that
activity. The firms are using the marginal analysis as a decision-making tool which supports
in maximising the true potential profits. In respect to using marginal analysis in pricing, it
considers all the continuing cost involved to produce a good is used in assigning the price.
One of the costs that should be avoided while undertaking decision making is the sunk cost.
This cost is an unavoidable one-time charge which have no further effect on the production of
the good. One of the examples of sunk cost is the equipment which is needed in brewing beer
and this cost cannot be avoided (Kianfar, 2019). Through the way of only considering the
future estimated cost of production, the firms can set the price which will compete in the
market while making sure it receives profit from their sales. The optimal pricing decision
takes place when the businesses compare the marginal costs with the marginal revenue based
upon the number of units sold. Demand curve is used to change the pricing decision int a

quantity decision, if MR is greater than MC, sell more by decreasing price and increase the
price in case MR< MC.
Opportunity Costs
While deciding among the two alternatives, the one is selected which results into
generating greater profits. The opportunity cost refers to the foregone opportunity in order to
earn higher profit from the other. It is important in the decision making as it supports the
decision makers to put their alternatives in the context. The costs and benefits is the term
which is most important at the time of the decision (Dolzhenkova and Iurieva, 2017). The
opportunity cost can lead to trade and is also considered as a driving force in respect to the
trade. For instance, a US based business has the capability of producing Widget A as well as
Widget B, but is having a lower opportunity cost in Widget B and on the other hand, a
Canadian based business is having lower opportunity cost in manufacturing Widget A. under
such situation, both the businesses can advantage by producing more of their desired widget
and then exporting the same to the other.
Benefits of Better Business Decisions
It is clear that the effective and better decision-making results into benefiting
producer by creating greater sales and profit increase also, these decisions benefits consumers
as well, since it is made on pricing which eventually benefits the consumers. The flexibility
and the shortening delays pertaining to the decision making is also very beneficial to the
consumer. The business entities are required to stay flexible and adaptable to the market
changes. The rise in the demand occurs and the supply is not prepared as the price increases.
The rise in the price lead to the rise in the production which may affect the demand (Weiss
and Kivetz, 2019). The society however, is benefitted in a different way as the interests and
the preferences of the consumers differs vastly. The R&D investment results into creating
innovation and inventions which results into benefiting the business, consumers and the
society. On contrasting it with the ethical approaches of deontology and consequentialism,
the Deontologists judge the actions as a good or ethical through the way of whether they
conform the set of principles while consequentialism judges the actions by its consequences
(Scholz and Hurych, 2018). If the outcomes of the actions are good, then it is considered to
be good or moral. From the deontology approach, it is the responsibility of the business
towards consumers and the society for benefitting them with their products. A
consequentialist approach might look at the rise in the production as consequential to the
environment through generating bigger carbon footprint.

Thus, it can be summarized from the above the elastic and inelastic demand of the
good is having a huge impact over the price of the product and also it involves analyzing the
importance and the relevance of marginal analysis pertaining to undertaking better decisions
which also involves the trade decision which consequently leads to benefiting the consumers
and society as well. This essay has resulted in benefitting or expanding the understanding
pertaining to the field of economics.

REFERENCES
Books and Journals
Cunningham, S. (2021). Example: Identifying Price Elasticity of Demand. In Causal
Inference (pp. 10-13). Yale University Press.
Dolzhenkova, E., & Iurieva, L. (2017, June). Concept of Lean Production Using Marginal
Analysis in Conditions of Innovation Economics. In International Conference on
Trends of Technologies and Innovations in Economic and Social Studies 2017 (pp.
132-138). Atlantis Press.
Kianfar, K. (2019). Maximizing profit in a supply chain by considering advertising and price
elasticity of demand. Computers & Industrial Engineering. 135. 265-274.
Scholz, P., & Hurych, E. (2018). The ethical issue in the case of selected football supporters:
deontology or consequentialism? Journal of Physical Education and Sport. 18(3).
1678-1684.
Weiss, L., & Kivetz, R. (2019). Opportunity Cost Overestimation. Journal of Marketing
Research. 56(3). 518-533.