Sample Economic Essay Paper on Elasticity and Pricing

Elasticity and Pricing

Any business needs to understand price and demand elasticity when building strategies for products or services in order to maximize profits by fixing the right price. Therefore, price elasticity can be defined as the frequency of response of quantity demanded due to change in prices (Marherjee et al 38). Price elasticity measures how people react to the new changes in price for a particular goods or service on the market .In simple terms when there is no high demand or zero demand the product is termed as inelastic which means the demand has not change despite the price changing. This is a normal occurrence when you find that there is an increase or decrease in pricing for sales of goods and services depending majorly on demand for the product. Generally non-essential goods show higher elasticity compared to essential goods which are not on demand whether the price changes or not (Marherjee et al 38).

It is therefore important to note that price elasticity is majorly determined by various factors including number of substitutes. If there are other alternatives for the goods then it is easier for people to shift to alternative if the price increases. This means that if there are large numbers of substitutes in the market then the product becomes more elastic. The necessity of goods is another factor that affects price elasticity of goods. If the goods are regularly needed then the demand is unlikely to change because the demand is always constant (Marherjee et al 38). Price elasticity also depends on when consumers taking note of the lesser alterations in price of expensive goods compared to slight shifts in the price of low-priced commodities. Therefore, a bigger fraction of disposable income tends to be elastic. Nike products are elastic because despite other players in the field their branding and innovation strategies have put them way above their competitors. By having a range of products with different price range make consumer infinite. By doing this they avoid standard pricing hence, increase in price elasticity (Kyle). In their website alone you will there are 81 different models of men shoes with price range from $40 to $225. Another innovative strategy they have initiated is to have prices varying depending on the social status of individuals including where one shops and lives.

In sports, Nike has been very innovative in altering products and use of superstars to attracts consumers. By signings branding deals with well known players to market their products Nike spends 11% of its sales to create demands for their products. This is done by payment to sport icons and also advertisements according to (Kyle). Furthermore Nike’s marketing events and advertisements are huge .The company has been successful in attracting   publicity  for example in one of their advertisement all sports star ladies from across the globe were incorporated  to market their sport shoes ,as a result the company now enjoys about $5 billion a year revenue collection from women alone. These are many of the innovative strategies Nike uses to create demand for their products, which are always altered to suit particular sessions and upcoming big events. This cannot be compared to a lobsterman’s product. Lobster is inelastic based on the three determinants of price, which includes alternatives in the market meaning there are no large alternatives in the market making the demand to be constant. The demand is unlikely to change since it is a necessity.

 

Works Cited

Kyle, Stockton. The Jumping Sneaker Prices behind Nike’s Boom, Times, Business week,

from : http://www.businessweek.com/articles/2014-09-26/how-nikes-jumping-      shoe-prices-bolster-boom-times Sept 26, (2014).

Marherjee Sampat, Marherjee Mallinath & Ghose Amitava .micro economics, prentice-Hall

India. (2003).Print