Product Market Aalysis; Revenue And Costs – Coursework Example

PRODUCT MARKET ANALYSIS: REVENUE AND COSTS PRODUCT MARKET ANALYSIS: REVENUE AND COSTS Elasti of demand may generally be defined as the sensitiveness of the quantity of goods or services demanded in relation to a change in the price of the said goods or services (Hofstrand, 2007). By explanation, elasticity of demand may be identified in economics as a principle of price sensitivity, where prices are said to be highly responsible for changes that characterize the demand pattern of goods and services (Zoromé, 2007). Linked with the principle of demand and supply, it would be noted that the prices of goods and services is a very important factor that determines the attitude of people towards purchases. In effect, consumer behavior is dependent on the amount at which a particular good or service would be claimed. With this in mind, once the price is altered, it is expected that consumer behavior, which to a large extent comes down to the making of demand will also be affected. Elasticity demand is often simplified in the equation below as:
% Change in Quantity Demanded
% Change in Price
With the current situation that McDonald finds itself in with the New Pumpkin Spiced Coffee, elasticity of demand may give three major indications that can be used to determine the success or otherwise of the product. But first, because this is a product that is to be introduced on the market new, it can work with the principle of elasticity of demand only based on the assumption or fact that it is coming in as a substitute product for the same kind of product that serves the purpose of the new product. This way, the demand trend on the product will be related to the price of the existing product this new product is coming to replace. In terms of the influence on success, it would be noted that the product may either be elastic, inelastic or unitary. For the product to be elastic, a change in price should result in a large change in quantity demanded. For inelastic, change in price should bring about only a small change in quantity demanded. Where the percentage in quantity demand remains static, we say there is unitary demand (Hofstrand, 2007). Given the fact that the new product is a food product, an inelastic demand is expected to take place.
Reference
Hofstrand D. (2007). Elasticity of Demand. Accessed September 29, 2013 from http://www.extension.iastate.edu/agdm/wholefarm/pdf/c5-207.pdf
Zoromé A (2007). Concept of Offshore Financial Centers: In Search of an Operational Definition. IMF Working Paper. Texas: Ultimate Press Limited.