Evaluation of Demand Elasticity Research Paper Example | Topics and Well Written Essays - 2000 words

Evaluation of Demand Elasticity - Research Paper Example The value of elasticity (e) for a product lies in the range of 0 to 1. If the elasticity for a product is 0 (perfectly inelastic), then the sellers can easily manipulate changes in the price of the product. However, if the demand elasticity for the product is 1 (perfectly elastic), then the sellers must be very careful while changing the price of the product (as the demand is highly sensitive). This research paper will concentrate on the business price elasticity analysis of a Hamilton Beach 4 Speed Blender. The learnt from the paper will help the researcher to analyze the most optimal business strategy for the product (Arnold 167). Section 1: Relative Price Comparison This part of the paper will explain the relative price comparison table for the concerned product, Hamilton Beach 4 Speed Blender. This is a table that would compare the prices of the product with its close substitutes. Relative Price Comparison Table (Source: Author’s Creation) The above table explains the rela tive price comparison table for the Hamilton Beach 4 Speed Blender. The three selected locations are the different cities of Los Angeles. These are West Hollywood, Culver City and Santa Monica. The table would compare the prices of Hamilton Beach 4 Speed Blender in these three locations (prices of the same group products in three different markets in nearby geographic locations) (â€Å"Hamilton Beach 54615 Wavestation Express Dispensing Blender with 48-Ounce Jar, Black†). The two close substitute product of the Hamilton Beach 4 Speed Blender are the Hamilton Beach Big Mouth Juicer and the Hamilton Beach Stainless Steel Peeler of Fruit and Vegetable. It should be considered that there is no perfect substitute for the mixer grinder. This is the reason for which peeler and juicer are the closed substitutes of the product. The table would also compare the prices of the close substitutes of the Hamilton Beach 2 Speed Blender in the same markets (â€Å"Hamilton Beach Big Mouth Jui ce Extractor†). Before the table is analyzed, one has to understand the meaning of a substitute product. Products are substitutes of each other if the features inbuilt in the product satisfy the same type of demand (hence, utility) for consumers. Cross price relation of substitute products is positive. For example, Coke and Pepsi are substitutes of each other and thus, the rise in the price of Coke would decrease its quantity demanded (law of demand) and increase the price for Pepsi (â€Å"Hamilton Beach Stainless Steel Fruit & Vegetable Peeler – 03066†). Price of Coke Quantity Demanded for Pepsi (Source: Author’s Creation) The relative price comparison table in the above graph reflects the price differentials among the close substitutes in the three nearby markets (Hamilton Beach 4 Speed Blender, Hamilton Beach Big Mouth Juicer and Hamilton Beach Stainless Steel Peeler of Fruit and Vegetable) and almost no price differences in the same group of product (H amilton Beach 4 Speed Blender) in the chosen locations in these three markets (Culver City, West Hollywood and Santa Monica). Before the in-depth analysis, the cause for this situation can be explained by theory of simple economics. The close substitutes are actually products with different characteristic