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Price-Elastic Products - Essay Example
Price elastic products are those whose rise in price will cause a remarkable decrease in demand. A product becomes price elastic when there is a severe competitive market. In other words, when oligopoly exists in the market then scope for increasing price of the product is very less…
The key is whether revenue is greater than costs. (Investopedia, 2003)
I would select price elastic products mainly to increase market share and increase the sales of the product. As the price of a product rises, consumers will usually demand a lower quantity of that good, perhaps by consuming less, substituting other goods, and so on. Conversely, as the price of a good falls, consumers will usually demand a greater quantity of that good, by consuming more, dropping substitutes, and so forth.
Consider the example of cell phone market. It is one of the best examples of price elastic products. We can see lots and lots of new cell phone models flooding the markets from different makers. There is no possibility of increasing the price of cell phone due to high competition. On the other hand, more advanced cell phone models with significantly advanced features come at a very low cost. In fact, the cost of the cell phones is a constant decreasing curve. A slight increase in the cell phone leads to a great decline in the market demand.
Consider a price-inelastic product (e.g. Petrol). When the price is raised from P2 to P1, the amount of change in demand (Q2-Q1) is very small compared to price rise (P1-P2). This is the case of monopoly.
Now, consider a price-elastic product (e.g.). The competition for market share is very high in this case. ...