Price elasticity
Price elasticity of demand refers to the degree of change in the consumer’s behavior due to a change in the price of commodities, assuming every other thing remains constant. It is the percentage change in the quantity of the product demanded by consumers due to the percentage change in the price of that commodity. There are various options that AutoEdge has that can help to resolve the issue of flagging revenue. One of those options is for the company to increase its commo0dities and relocate its manufacturing to the United States. Whenever there is a substantial change in response to the quantity of a product or service demanded, it is elastic. If there is little change in the quantity of a product demanded after a change in price, it is inelastic. It means that the difference in price for the commodity had minimal impact on the shift in consumer’s behavior.
An increase in the price of AutoEdges’ product is likely to influence the consumer’s behavior due to several factors. If the products manufactured by the company are a necessity, then the demand for them will be inelastic; therefore, the demand for them is not going to change so much, and the company will be able to increase its revenue. In this case, the price elasticity of demand is less than one; therefore, customers are unreactive primarily to the change in price. Factors that affect the inelastic price elasticity of demand include products with no substitutes such as petrol; therefore, consumers have to purchase them irrespective of their price and location. The other factor is the necessity. Such products will be bought despite the change in price.
If the demand for products manufactured by AutoEdge is elastic, the company is likely to witness a fall in demand for its products after rising the price and relocating its manufacturing to the United States. In this case, consumers are very responsive to price and are unwilling to spend more on that particular product; therefore, they will go for an alternative product. For example, companies that manufacture juice if one company raises the price of its products consumers are likely to switch to the products of other companies that manufacture juice too. Products with elastic price elasticity are affected by factors such as homogeneity of products, products with several substitutes, luxury, and non-essential products, and low switching costs.
A perfectly elastic demand will occur when a small change in the product’s price leads to a significant shift in demand for the product. Perfectly inelastic demand occurs when there is no change witnessed in the product’s demand when its price changes. Relatively elastic demand occurs when the percentage change in demand for the product is greater than the percentage change in the product’s price. Finally, relatively inelastic demand occurs when the percentage change in the quantity of the product demanded is less than the percentage change.