Elasticity Of Demand And Economics Decision Making Economics Essay

Elasticity Of inquire And Economics Decision Making Economics EssayExtent or degree to which a bring or supply curve reacts to the channelize in expenditure is c whollyed elasticity of that curve. This nature of curve varies with distinct nature of products means if a product is essential then change in price does not effect much on gather up. On the separate hand less essential product argon quite sensitive to the price changes beca theatrical role opportunity cost of buying those product be abide by too high.A good or utility is said to be highly elastic if slight change in price leads to a sharp changes in measuring rod demanded or supplied. in that location argon lots of products in the martplace which are not needed in our routine life. And a good or usefulness is said to be highly inelastic if changes in price doesnt effect much on the quantity demanded or supplied. These are those product or services which are very(prenominal) much essential to our unremarkable life. toll Elasticity of DemandIt is defined as the contribution change in quantity demanded to the percentage change in price for a particular product or service. Demand is said to be elastic if change in price leads to a higher change in demand, in that baptismal font Price Elasticity of Demand (PED) would be more than whizz i.e PED 1P PDDElastic demand PED1 Q Perfectly Elastic QGoods which comes beneath elastic category tend to progress to following characteristicsThey are luxury goods.They are very expensive interchangeable sports cars.Goods bought frequently.Goods with many substitutes in securities industry.Price Inelasticity of DemandDemand is said to be inelastic if the percentage change in price doesnt be active much on the demand of a product i.e. PED P PInelastic demand PEDGoods which come under inelastic category tend to have following characteristicsThey are necessities.People are use to them means they are addictives like wine cigarettes.They have no or very few substitutes like petrol.They cost a small percentage of income and bought infrequently.In the short demand is usually more inelastic because it takes period to find alternatives. We end say if the price of chocolate increased demand would be inelastic as thither is no alternatives, however if the price of mercury increased on that even are fill substitutes in the form of other chocolates. Therefore demand would be more elastic.In broad thither are three factors influencing the demands price elasticityThe availability of substitutes This is the most important factor influencing the elasticity of a good or service. In general speaking more the substitutes the more elastic the demand result be.Income available to slide by on goods This factor affecting demand elasticity refers to the total a some(prenominal)one can spend on a particular good or service. Now suppose price of orange juice goes up from $2 to $3 and the income remains the selfsame(prenominal). So the income that is available to spend on orange juice which is say $12 is enough for only 4 cans rather than 6. In other words consumer is forced to reduce his demand of orange juice. So if there is increase in price and at the same time no increase in available amount for that good or service then there will be elastic reaction in demand. Therefore demand will be sensitive to a change in price if there is no change in income.Time Another important factor is time. If price of cigarettes goes up by 15%, a smoker with very few substitute start buying on daily basis rather of buying for a week or so. This suggests that tobacco is inelastic because change of price will not have a considerable influence on the quantity demanded. However if the smoker finds difficult to spend extra 15% and begins to cook rid moody smoking, the price elasticity of cigarettes for that consumer become elastic in long run.Market StructureEvery market has his own features on which it works or behaves. There are few fe atures which we should consider while determining the market structure asFirst of all we should know the awareness of consumer somewhat the market. We should know how knowledgeable our guests are.We should know how many firms are doing the same worry it tells us the extent of ambition we are supposed to face.What typeface of product we are dealing with, whether it is culmination in the category of necessary product or in the category of luxury product.Whether the entry in the market is easy or difficult and same is the case with leaving the market.Based upon these factors we decide whether the market is perfectly competitive or imperfectly competitive. In a perfectly competitive market there is no entry and exit barrier, we can enter or exit at any point of time from the market. Also in perfectly competitive market product is homogenous and there are hulking number of buyers and sellers. While in imperfectly competitive market there are very few buyers and sellers, very diffi cult to enter into and exit the market and at the same time there is monopoly of product.Market Structure of Airline IndustryMarket structure which suits to Airline Industry is oligopoly market. In this type of market there are only 2-3 firms who dominate the market. advertizement and marketing is very important in much(prenominal) type of markets. As there are very few firms, they know each other very well. They know strategies of each other. So they always consider their competitors, while making price strategies, because they save cant set the prices by themselves. They have to consider the pricing of their competitors as well. Although when one firm has a dominant position in the market the oligopoly may experience a price leadership. Firm having abase market share may forced to follow the pricing policy of dominant firm. As large amount of fixed cost is involved in this type of market so entry as well as exit is very difficult. There are basically three major theories about the oligopoly of pricing as underThese firms collaborate to charge the unique price and at the same time unique benefit.These firms compete on price so that price as well as the profit will remain same as in competitive market.These firms had the price and profit in between of perfectly competitive and monopoly markets.Market StructureSeller Entry hindranceBuyer entryBarrierNumber ofSellerNumber ofBuyersPerfect competitionNoNoManymanyOligopolyYesNoVery fewmanyMonopolyYesNoOnly onemanyTable for different market structureYield ManagementThe basic concept of yield management is to fork out right service to right person at the right price on right time. (Kimes, 1989 Weatherford and Bodily 1992). Now in case of Airline Industry we can define yield management as generating maximum gross per seat by keeping customer satisfied. We can do this by applying different policies. As in every industry, customer is very important in this industry. Customer is paying quite an amount to tug the s ervices of this type of industry. So we have to take a very good care of customer as well. We have to provide good service right from the booking of ticket to leaving get through the plane.The strategic points of yield management are four Cs namely, calendar, capacity, clock and cost and they all shrink together with some other C i.e. customer.Singapore Airlines is a corking example of this. They take a great care of their customers. They keep data of each and every passenger travel with them. They not only provide excellent service but also maintain good and caring relations with customers.Firms compete for market share and demand from customers in many ways. We differentiate these ways into two major subheads i.e. Price contender and Non-price Competition. We are considering New Zealand Airline Industry as an examplePrice CompetitionPrice competition involves increasing the demand by discounted the price. We increase our business in different ways as underWe can provide disco unted tickets in the off seasons. We can provide ticket through some arrangement like buy one ticket and get 50% discount on purchase of another(prenominal) ticket. This would definitely attract customers and at the same time would increase the revenue. Because there is no use of ephemeral with vacant seat, its better to have customers with discounted tickets.We can also start pre booking scheme especially for our off season. We can launch scheme like discount on ticket booked 1-2 months before. This would enable us to know how much customer we have in our off season and we can train our unless strategy according to that. If we still have very few bookings then we can offer some gifts, holiday package or so on booking to boom our sale. We can introduce wise packages with our tickets. We can collaborate with few hotels to provide a complete holidays package to family, newly married couples teenagers.We can provide one way free travel, means a person can pay for one way and get the ticket for return as well. This will increase the revenue and at the same time enable us to get few loyal customers.Non- Price CompetitionThis is the focus on other strategies to increase the market share. There are various strategies which comes under this category as publicizing and marketing is the major strategy which comes under this category. As there is huge investment involve in this type of industry so we want to get super normal profit out of this. Advertisement plays an important role in achieving this. We advertise and market our product or service in such a way that it put significant impact on customer.On line booking is another value added service. We can book our ticket from home and get our seat confirmed. This would help customer to make his plan well in advance and at the same time it is hassle free. This would enable them to get rid off agents as well as long queue. And apart from this it is 24 hours service.Locality razz or points given to every customer, w ho keeps on adding and customer, will get a prize on reach certain points. This enable customer to interest for his next trip from same airline.