Elasticity, Demand and Revenue

2017

The monthly allocation of the raw material at Company X (further referred to as CX) is planned with a sales and operations planning (S&OP) model. The S&OP model allocates the raw material to aggregated product categories, so-called plan products. Around 20% of the total raw material supply is processed into the plan product 'product 1'. CX has a market share of more than 50% in product 1 and their production quantities influence the market price. The effect between quantity and price is usually expressed in the term price elasticity. Currently, CX does not consider the effect of price elasticity in their S&OP model. Previous research expresses the relation between quantity and price mathematically and shows positive results in a fictional case study with piecewise linear approximations. Piecewise linear approximations are necessary to implement price elasticity in the S&OP model of CX. This research investigates the impact of implementing price elasticity in the actual S&OP model with real data of CX. Therefore, the main research question of this thesis is: What is the impact of the implementation of price elasticity in the sales and operations model of Company X? At first, we investigate the current situation. Processing raw material into product 1 results in the byproduction of product 3 and product 4. The same applies for the processes other products, like product 2, which results in the by-production of product 4. To measure the valorisation, or added value, for processing raw material into a certain products and corresponding by-products, CX categorised its products and by-products in certain 'baskets'. We will analyse the financial effects of the products with the change of the valorisation of these baskets due to price elasticity.

2017

Method/Design and sample: Assessment of the learning activity is based on both student self-perceived learning and exam performance (direct measure). 148 students attended the class, participated in the activity, and completed the surveys. Next, performance of student participants on price-elasticity related portion of exam was compared with that of student non-participants (who missed class when the activity was introduced).

2008

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2010

Elasticity of demand expresses the degree of correlation between the demand and price. It measures the ratio of the relative change in the dependent variable (quantity) to the relative change in an independent variable (price). Price elasticity of demand is therefore a technical term used by economists to describe the degree of responsiveness in demand for a commodity to a change in its price.

trakia journal of sciences, 2010

Elasticity is a measure that economists use quite often to measure the variation of such variables as price, supply and demand of certain product groups. Knowledge of managers on the elasticity of demand for its products on the market and the factors that influence it would give her enough great competitive advantage, and hence profits, the company will be financially stable and profitable, while those who do not handle this analysis will suffer continuous losses and eventually fail. In this regard, the survey analysis is the elasticity of demand for certain food products (macro level) and are themselves subject to the consumer market in Bulgaria, which determine the demand for these goods.

Journal of the Academy of Marketing Science, 2005

The authors derive an expression for the price elasticity of demand in the presence of reference price effects that includes a component resulting from the presence of gains and losses in consumer evaluations. The effect of reference price is most noticeable immediately after a price change, before consumers have had time to adjust their reference price. As a result, immediate-term price elasticity is higher than long-term elasticity, which describes the response of demand long after a price change, when reference price effects are negligible. Furthermore, because of the differential effect of gains and losses, immediate-term price elasticity for price increases and price decreases is not equal. The authors provide a quantitative definition for the terms immediate term and long term, using the average interpurchase time and the discrete "memory" parameter. Practical consequences of the distinction between immediate-and long-term elasticities for the estimation and use of elasticity values are discussed.

IJRSR, 2021

A small price increase/decrease might result in a substantial change in demand or supply. Theoretically it is impossible to say exactly what will happen in cases like these. Each product may have a different price-quantity reaction. Theoretical economists can provide a useful guidance for studying this relationship. Elasticity is a measure of the relationship between quantity demanded or supplied and another variable. A market economy can be defined as a system that recognizes and safeguards property rights, i.e. the rights that regulate the ownership, use and distribution of resources and the goods and services produced according to the changing preferences and potential of the market players. It allows the market to run freely in accordance with the law of supply and demand that acts as an ‘invisible hand’ in guiding the economy

Journal of Business Research

The marketing literature generally supports the view that price elasticity varies from product/brand to product/brand, influential work by suggests that elasticities show little variation even when prices themselves are changing. The paper reports an investigation of variations in demand elasticity for foods that indicates that brand attributes (conceived as the functional and symbolic benefits provided to consumers) contribute differentially to demand elasticities. Using panel data for 1500+ consumers purchasing 4 food products over 52 weeks, the study examines how factors other than price affect demand elasticity for brands. Contrary to and in addition to findings, price elasticities for products and brands emerge as extensively dynamic. In addition, the functional and symbolic characteristics of brands relate to these exhibited patterns of elasticity. The paper also discusses reasons for the discrepancy between these results and those reported by .

2015

The elasticity of supply and demand is an indicator of the behavior of producers and buyers to changes in commodity prices. It helps entrepreneurs and government officials to evaluate their pricing policies. In Mexico, this indicator is not commonly used, due to the belief that the elasticity can only be calculated using sophisticated econometric techniques. This study aimed to prove that through a simple method reliable elasticity can be obtained. The process began by determining the models that represent supply and demand in a simplified form. To each of these was calculated their parameters through multiple regression for which was used linear, double logarithmic or semi- log functions according to the case. From each equation the coefficient of the price (β) was taken to calculate the respective elasticity. These were compared with those obtained by sophisticated methods. It was concluded that i) price elasticity of supply calculated by regression, differs in value from those ca...

SSRN Electronic Journal, 2000

American Journal of Business Education (AJBE), 2013

An estimate of a products price elasticity can be used to calculate whether a price change will increase or decrease sales revenue. However, the price elasticity of demand does not indicate if a price change will increase or decrease gross profit because the marginal cost per unit confounds the calculation. However, an estimate of the price elasticity can be combined with the products markup to calculate if a change in the selling price will increase or decrease the profit. The purpose of this paper is to demonstrate how estimates of the price elasticity and the markup can be combined to help managers decide if greater profits can be realized with a price decrease or a price increase.

Tij S Research Journal of Economics Business Studies Rjebs, 2013

The paper analyzes the different variables with product characteristics that affect the pricing of a (competitive) firm as vibrant productive unit. Based on the firm's profit maximization problem, the paper brings out the role of demand elasticity as well as customers' loyalty as the key factors in the firm's pricing strategy. This is stressed because in marketing a product little has been said about the importance of price demand elasticity in pricing strategy.