Using Elasticity to Predict Changes in Demand and Construct Pricing Decisions

Elasticity enables corporations to evaluate the demand sensitivity of products and services in the business environment. The demand for different commodities is usually affected by factors such as price levels, the type of good or service, and the existence of a substitute. In the same vein, a country’s disposable income influences consumers’ ability to purchase different products, compelling marketers to differentiate consumer groups and focus on promoting affordable and quality products in the business environment. From this observation, a household’s disposable income directly impacts elasticity, where demand for different products surges with an increase in consumer income.

Analyzing Changes in Demand Using Elasticity

Elasticity is determined by the demand quantity of products when their price changes, while inelasticity is influenced by limited demand changes when the price of commodities fluctuates. In this case, high-priced products and services such as Electric Vehicles (EVs) are elastic because of consumers’ ability to purchase things when the prices fall. Likewise, products with many alternatives, such as hamburgers, are elastic because of the wide range of substitutes available to consumers (Vargas, Novoa, Arias, & Peña, 2018). On the contrary, essential goods such as food and specific household products are inelastic because of the minimal impact on demand after a price increase. Consumers are willing to purchase crucial products because of their role in their lives that compels them to buy them at the market rate. For this reason, the price elasticity of demand is affected by the availability of substitutes and the brand identity of certain goods in the business environment.

Avoiding Sunk Costs to Make Better Pricing Decisions

Marginal costing enables company managers to develop effective pricing decisions by setting prices, comparing substitute products, and closing production lines. Notably, marginal analysis exposes organizations to opportunities that identify the type of products and services to introduce to the market based on their understanding of the market demand for certain goods. However, one must note the impact of evaluating the value of manufacturing activity against production costs when making pricing decisions (Quintella, Silva, Almeida, & Embiruçu 2017). Even though sunk costs are irredeemable losses, many businesses have identified approaches that narrow their focus on future costs. In this regard, sunk costs are often ignored in the decision-making process because of their insignificance on an organization’s operational performance in its present form. Hence, company managers must develop strategies that enable them to operate without considering sunk costs in their decision-making processes because of their limited impact.

The Significance of Opportunity Costs to the Decision-Making Process

Opportunity cost enables business leaders to visualize the impact of their decisions on organizational performance. Using this economic concept, costs and benefits are examined based on their significance when making decisions. In this regard, companies that consider the opportunity cost in their decision-making processes understand the relationship between scarcity and choice, an aspect that leads to better outcomes. From this realization, organizations utilize their scarce resources effectively to maximize profit generation and eliminate any loss-making activities that hinder them from achieving their desired goals and objectives in the business environment (Meacock, 2019). Today, organizations use opportunity cost to evaluate the benefits that can accrue from their ongoing company projects. Similarly, one can identify the losses that will influence an organization’s performance when exposed to different situations in the corporate world. Hence, opportunity cost enables corporations to evaluate the impact of substitutes and the influence of future expenses on the overall company growth and development.

The Impact of Good Decisions on Consumers

When organizations make better decisions, consumers and society are some of the entities that benefit from the process. In this regard, better decisions yield to consumer satisfaction realized through the development of quality products and services. Likewise, society benefits from corporations’ ethical approach in their different programs that give back to the people. In both instances, the decision-making process plays a vital role in shaping the future by producing quality goods that represent organizational goodwill (Jordan & Haines, 2017). Deontology influences organizations’ approaches when making decisions because of their ability to demonstrate their moral compass in the community. However, consequentialism highlights the path that decision-makers should follow to adhere to societal beliefs and values. Notably, company actions that are deemed to be wrong attract severe consequences, which affect its brand image. Thus, embracing recommended ethical approaches enables corporations to make the right decisions that benefit consumers and society as a whole.

Conclusion

The price elasticity of demand is affected by the availability of substitutes and consumer income levels, which determine their purchasing abilities. Making the right decisions can be enhanced by considering specific techniques such as opportunity cost, which allow businesses to evaluate the impact of producing certain goods. Simultaneously, avoiding sunk costs because of their limited effect on an organization’s current form enhances the business environment’s chances of success. From this perspective, making decisions affects consumers and society because of the impact of outcomes in the workplace.

 

 

References

Jordan, J., & Haines, M. (2017). Focus groups: How feedback from employees can impact the decision-making process. Pennsylvania Libraries, 5(2), 117-126.

Meacock, R. (2019). Methods for the economic evaluation of changes to the organisation and delivery of health services: Principal challenges and recommendations. Health Economics, Policy and Law, 14(1), 119-134.

Quintella Vitor, d. M., Silva Jr Antônio Francisco de,Almeida da, Almeida Jose Ricardo, U. C., & Embiruçu Marcelo. (2017). Financial exposure and technology innovation investment: Measuring project results in brazilian commodity industries. Academia, 30(4), 547-564.

Vargas Walteros, C., Novoa Hoyos, A., Arias Ardila, A. D., & Peña Ballesteros, A. S. (2018). Analysis of demand and supply in the colombian housing market: Impacts and influences 2005-2016. International Journal of Housing Markets and Analysis, 11(1), 149-172.

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