EL 111 Lecture Notes - Lecture 4: Jacqueline Woodson, American Civil War, Lewis Carroll
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Determinates of Price Elasticity
K-Mart-- Determinants of demand elasticities
1. Generally, the elasticity of demand for a product will be greater when there are:
(a) the larger number of substitutes,
(b) the greater proportion of income an item takes,
(c) the less the item is considered to be a necessity, and
(d) the longer length of time allowed for adjustment to change the price of the good.
2. K-Mart, at its web-site, K-Mart.com posts a weekly sales circular on selected merchandise, organized by department. It must be concluded that the demand for these products are elastic. The decrease in price will increase total revenue. Check out this week's specials and, select ten items.
- Answer these questions:
- How many specials score 1 point (or 1 yes) for meeting the criterion of each determinant above.
- Which specials score 4 points (or 4 yes) for meeting the criterion of each determinant above?
- Which specials score 0 (or no yes)?
- Why would K-Mart include any item that scored less than a 3 (or less than 3 yes) ?
If the product meets all the determinates of elasticity the more elastic the product. Such as a diamond necklace. So the necklace may go on sale or the store may offer unlimited cleaning of the diamonds or storage to encourage people to buy the necklace.
Whereas a product that meets a few of the determinates of elasticity are considered necessities.
For Example: Do not use any of my products.
| Determinates | Dial Body Soap | Tide Laundry Det. | Cigarettes | Generic Heart Medication |
| Does the product have a large number of substitutes? | Yes/1pt. | Yes/1pt. | 0 | 0 |
| Does the product require a large proportion of your income? | 0 | 0 | 0 | 0 |
| Is the product a necessity? | 0 | 0 | Yes/1pt. | Yes/1pt. |
| Do you take a long time to think about buying the product? | 0 | 0 | 0 | 0 |
| Total for Each Product | 1 | 1 | 1 | 1 |
