...all, a good thing to know about deciding to invest is to get to know the company, since you will soon become a co-owner. Pepsico is a multi-national company, that operates across the entire globe. Pepsico not only offers carbonated soft drinks, but also many other global brands such as; Lays potato chips, Gatorade sports drinks, Quaker Oats, Tropicana, and many more for a total of twenty-two well known brands across the world. Pepsico is part of an oligopoly market, which means it’s “an industry that contains two or more firms, at least one of which produces a significant portion of the industry’s total output” (Ragan, 2013). Company’s that are in an oligopoly competition market can use either high-price or low-price strategy to maximize their revenue and profits. Because Pepsico is in an oligopoly market, their products are substitutes for other company’s products, therefore their products have a high and positive cross elasticity of demand. Price elasticity of demand is another component you must understand when considering investing in Pepsico. Price elasticity “is the measure of responsiveness of the quantity of a product demanded to a change in that product’s price” (Ragan, 2013). In order to properly identify whether a...
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...question, at most one curve will shift. Use the following code to indicate each of your answers: a. Demand increases. b. Demand decreases. c. Supply increases. d. Supply decreases. e. Neither demand nor supply changes. -------------------------------------------------------- 1. The wages of workers on tuna fishing boats rise by 10%. 2. The price of canned sardines falls by 50%. 3. The government bans the use of the most efficient nets for catching tuna. Part II (6 points: 2 points each) All of the questions in this Part refer to the market for new automobiles produced by a firm known for high quality. All questions are concerned only with the short run. Each situation is not related to the others. Analyze each question separately. Assume that the supply and demand curves are normally shaped. In each question, at most one curve will shift .Use the following code to indicate each of your answers: a. Demand increases. b. Demand decreases. c. Supply increases. d. Supply decreases. e. Neither demand nor supply changes. -------------------------------------------------------- 1. The price of gasoline falls by 30%. 2. The price of cold-rolled steel used in the manufacture of automobiles falls by 20%. 3. There is a wave of recalls of the firm’s automobiles to repair defective brakes. Part III (6 points: 2 points each) All of the questions in this Part refer to the market for orange juice. All questions are concerned only with the short run....
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...Consumers [Consumer Choice & Elasticities] (Section 6) I. Definitions Utility [Felicity] (Satisfaction)- The benefit or satisfaction a person gets from a choice or action Marginal Utility (MU)- The additional utility someone gets from consuming an additional unit of a good. Marginal Utility Formula = ∆ Total Utility ∆ Quantity Law of Diminishing Marginal Utility- As someone consumes more of a good marginal utility will eventually decline (as consume more the increase in utility will be smaller each time) ExsMarginal Benefit (MB)- Maximum price a consumer is willing to pay for an additional unit of a product. The dollar value of a consumer’s utility of consuming an additional unit: So it f______ as consumption increases 1 II. The individual: Demand curve & consumer choice Marginal Benefit reexamined What does it really mean if a consumer is willing to pay up to (at most) $10 for an additional unit of the product. Marginal Utility per $ spent: MU Good A Price of good A Interpret: MU A P A Ex: Buying one more burrito (from 1 to 2) gives you an ↑ in utility of 10 & costs $5 2 A. Deriving a demand curve for slices of pizza for Carlos Slices 0 1 2 3 4 5 6 7 8 9 10 Total Utility 0 200 390 570 740 900 1030 1130 1200 1240 MU if P MU X 200 P=$2 MU if P P=$1 MU if P P=$0.50 10 Cheeseburgers That cost $0.50 Total Utility 130 240 340 430 505 555 580 595 605 610 Slices 1 2 3 4 5 6 7 8 9 10 MU 130 MU P Carlos’...
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...Questions and Answers from Lesson I-7: Elasticity Practice Questions and Answers from Lesson I-7: Elasticity The following questions practice these skills: Use the midpoint method for calculating percent change. Compute price elasticity of demand. Identify elastic and inelastic demand according to the price elasticity of demand. For elastic demand, apply the negative relation between price and revenue. For inelastic demand, apply the positive relation between price and revenue. Remember demand is more elastic when there are more substitutes or closer substitutes. Compute the price elasticity of supply. Compute cross-price elasticities of demand. Relate cross-price elasticities of demand to gross substitutes and gross complements. Identify elastic and inelastic portions of a linear demand curve. Compute income elasticity of demand. Question: Amazon.com, the online bookseller, wants to increase its total revenue. One strategy is to offer a 10% discount on every book it sells. Amazon.com knows that its customers can be divided into two distinct groups according to their likely responses to the discount. The accompanying table shows how the two groups respond to the discount. Group A (sales per week) 1.55 million 1.65 million Group B (sales per week) 1.50 million 1.70 million Volume of sales before the 10% discount Volume of sales after the 10% discount a. Using the midpoint method, calculate the price elasticities of demand for group A and group B. b. Explain...
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...current market price. So the effective demand for sports cars, for instance, might be measured by the actual number of sports cars sold at a certain price during a particular period. * What is Price Elasticity of Demand? Price elasticity of demand measures the degree of responsiveness of the quantity demanded of a good to a change in its price. It is also defined as: "The ratio of proportionate change in quantity demanded caused by a given proportionate change in price". Formula For Calculation: Price elasticity of demand is calculated by dividing the percentage change in quantity demanded of a good by the percentage change in its price. Ed = Percentage Change in Quantity Demanded Percentage Change in Price Simple formula for calculating the price elasticity of demand: Ed = %∆Q %∆P Here: Ed stands for price elasticity of demand. Q stands for original quantity. P stands for original price. ∆ stands for a small change. Percentage change in quantity demanded | Percentage change in price | Elasticity | 20 | 10 | 2 | 25 | 50 | 0.5 | 28 | 7 | 4 | 3 | 9 | 0.333 | The table shows a number of calculations of price elasticity. For instance, if an increase in price of 10% leads to a fall in quantity demanded of 20%, then the price elasticity of demand of 20%...
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...Chapter 1 – Reasoning with Economics: Models and Information • Economists base much of our thinking on simplified models of reality that neglect many details o Models that apply to a broad range of situations must be simple, but they can help you think logically no matter what happens in your market. • Why be abstract when you have facts? o Reality is so complex and our mental capacities so limited that we must be selective in what we think about. • Economists are human and they have values and beliefs that might render their objectivity suspect o Positive economics describes and analyzes things as they are (or as objectively as they can be seen) o Normative economics is about how things “ought to be” – it explicitly acknowledges the researcher’s values. Whatever positive theory may say, an economist’s normative views on prostitution or the drug trade might lead her to recommend that these activities remain illegal. • Rationality o Economics studies the choices people make in the face of constraints that limit their options o Economics studies the allocation of scarce resources among competing goals. Underlying both definitions is an assumption that people act rationally, with an eye towards attaining objectives they have chosen. o Rationality does not mean that people are computers People may not perfectly understand their own preferences or do not know how best to overcome the obstacles that stand between them and their goals. o What rationality offers...
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...Price Elasticity of Demand | | In this chapter we look at the idea of elasticity of demand, in other words, how sensitive is the demand for a product to a change in the product’s own price. You will find that elasticity of demand is perhaps one of the most important concepts to understand in your AS economics courseDefining elasticity of demandPed measures the responsiveness of demand for a product following a change in its own price. The formula for calculating the co-efficient of elasticity of demand is:“Percentage change in quantity demanded divided by the percentage change in price”Since changes in price and quantity nearly always move in opposite directions, economists usually do not bother to put in the minus sign. We are concerned with the co-efficient of elasticity of demand.Understanding values for price elasticity of demand * If Ped = 0 then demand is said to be perfectly inelastic. This means that demand does not change at all when the price changes – the demand curve will be vertical * If Ped is between 0 and 1 (i.e. the percentage change in demand from A to B is smaller than the percentage change in price), then demand is inelastic. Producers know that the change in demand will be proportionately smaller than the percentage change in price * If Ped = 1 (i.e. the percentage change in demand is exactly the same as the percentage change in price), then demand is said to unit elastic. A 15% rise in price would lead to a 15% contraction in demand leaving total...
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...businessman would always raise prices when facing an inelastic demand curve, but might or might not raise prices when facing an elastic demand curve? Explain and justify your answers in detail. Elasticity: “The percentage change in one variable relative to the change in other variable”. Price elasticity of demand is defined as “parentage change in quantity demanded, caused by a 1 % change in price. Total revenue = Price * Quantity demanded The demand is inelastic for goods considered to be necessities, and it is elastic for luxury products. For example the demand of furs, gems, and expensive automobiles is probably more elastic than the demand of milk, shoes, and electricity. When the demand is inelastic a profit maximizing businessman will raise price, when dealing with an inelastic demand curve because he expect to increase total revenue. Example: An example may be the case of salt. Today’s price of salt is about 44 cents per pound. If this price were to rise to 54 cents, or fall to 34 cents, it is very doubtful that the consumption of salt would change. People will still keep buying the inelastic items anyway of the price increase. When demand is elastic, profit maximizing businessman might or might not raise prices because an elastic demand is very price sensitive so, when price increase the demand drops and total revenue will drop. Example: Let’s take example of the famous Italian sports car Ferrari. This car is usually...
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...changes in social trends, consumers’ values and beliefs can impact on the demand of a company’s products. For example, there is a growing consumer awareness of healthy eating (IBISWorld, 2015), which could affect The Hot Fresh Fries Company. Micro environment factors: Customers has a huge impact on the business directly as they are the people who purchase the goods. Therefore knowing their needs and wants are critical. The Hot Fresh Fries is a B2C business which means the company needs to market to the consumers. Competitors are those who sell similar products in the market, such as McDonalds and Hungry Jacks. In order for a company to gain a decent position in the market, the company needs to analyze their competitors’ products, prices and strategies and offer better benefits or products to the consumers. II. Marketing goal By the end of 2018, to sell a total of 200000 cups of hot fresh fries in NSW and VIC. III. Marketing strategy III.I Target Customers A profile of the target segment is shown in...
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...Q # 1 {Chapter # 4} (a) If there are no restrictions on the number of taxi rides that can be supplied then in that case the equilibrium quantity will be 11 million taxi rides and the equilibrium price will be $6.5. This is illustrated in the diagram below : (b) If the Mayor set the price ceiling at $5.5 then in that case there will be a shortage of the 4 million taxi rides ($13M rides-$9M rides). The taxi drivers lose because now the fare per taxi ride has reduced from $6.5 to $5.5. Also the people who are unable to get a taxi ride at $5.5 (since the demand for the taxi rides is now being more than the supply of the taxi rides) will also stand to lose. Those who are able to get the taxi ride at $5.5 are benefited from this policy. This is illustrated in the diagram below : (c) Since the stock market crashed, the people in the Gotham city became poor. This resulted in the reduction in the demand of the taxi rides by 6 million rides per year at any given price. Since the demand for the taxi rides reduced due to a factor other than price, there will be a leftward shift in the demand curve for the taxi rides. Thus the new equilibrium quantity will be 8 million taxi rides and equilibrium price will be $5 per taxi ride. This is illustrated in the diagram and the grid below : Fare per ride | Quantity Demanded | Quantity Supplied | 7 | 4 | 12 | 6.5 | 5 | 11 | 6 | 6 | 10 | 5.5 | 7 | 9 | 5 | 8 | 8 | 4.5 | 9 | 7 | (d) The mayor announces a policy in...
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...provides the same caffeine boost without the added calories from sugar and additives. Along with a wide variety of flavors, we have added an innovative lid that is used as a measuring cup and allows the consumer to measure out the exact amount of energy needed. Mobileboost Energy Company has added its new product named “Mobile-Energy” and promises its users that they will taste the difference and feel the amount of natural energy our product contains without missing a beat in today’s fast paced society. Elasticity of Demand Mobileboost Energy Company is among the industry leaders for energy drinks and has proved, each year, to be highest grossing company on the market. Despite holding the number one seat in market share, the demand for energy drinks is extremely elastic. There are two key factors of price elasticity of demand for monopolistic competitor organizations, “the number of rivals and the degree of product differentiation” ” (McConnell, et.al., 2009). The elasticity of demand results from the abundance of companies that bring new drinks to the industry each year. The market is often flooded with new flavors, new portions, and lower costs from various companies, each promising to provide the customers what their competitor cannot. Along with competition, other costs are constantly evaluated and calculated into...
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...brand of Sports Drink that provides a healthy hydrating solution; containing powerful antioxidants that reduce the risk of many diseases including cancer. Pricing strategy: Two pricing strategies can be used with new products Skimming and Penetration. Skimming strategy will help us reach our performance objective by covering high costs of development, sacrificing high sales for high profits while capitalizing on the price insensitivity of buyers. A Penetration strategy would not be beneficial because with a lower price and a higher production cost, our profit margins will be negatively affected and our performance objective will not be reached. o (20% – 22%) / 22% = .268 [ < 1 i.e. Price Inelastic] ($.79 - $.59) / $.59 o (15% – 20%) / 20% = .988 [ < 1 i.e. Price Inelastic] ($.99 - $.79) / $.79 Vital-Aid will be sold at the manufacturer price of $0.53 and the MSRP of $.79 per 20 Oz. Bottle. Although pricing 5 flavors at $0.79 manufacturer’s price will maximize profit, The Price Elasticity of Demand At both price points are Inelastic, which means that the consumers at these price points are less price sensitive. Because elasticity is the same, competition plays a large role in the pricing decision. The manufacturer’s price of $0.53 price makes sense because it is high (above other major competition) but below the market leader Croc-Ade, also our retail price will be the highest (equal to Croc-Ade’s), fitting in with our skimming pricing strategy. The manufacturer’s price of $0...
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... PART A – Definitions Elasticity of Demand Elasticity of Demand was developed by Alfred Marshall for measuring consumer’s reaction to demand of a change in price of goods or services. It is measured in percentages of demand requirements of a product after a price has changed even slightly. Cross-price Elasticity Cross – Price Elasticity occurs when the price change of a product affects the consumer demand of a completely different product. In the case of substitute products, cross-price elasticity happens when a substitute product is entered in to the market at a higher price than the original product and consumers continue to purchase the lower priced product. If the products are complements of each other, the rise in price of one of the products will cause both products demand to fall. For example, if the price of eggs rises the demand for bacon will decrease because of the association of eggs and bacon. Income Elasticity Income Elasticity measures the response of quantity demand of consumers as their incomes either rise or fall. Normal goods are products where demand increases with the increase of consumer income and decreasing demand when income levels fall while prices stay the same. Income elasticity is positive when associated with normal goods. Normal goods are classified as either necessity goods (food, power, and housing) or superior goods (caviar, luxury cars). Inferior goods are associated with a negative elasticity of demand because when consumers’...
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...Supply and Demand Paper Monique Clement XECO/212 Frederick Runge When you are thinking about buying a new car there are some many things to think about including supply and demand. Understanding how supply and demand works can help you when it comes to purchasing a new car. You have to think about what make, model and year because those things will help you with elasticity and complements. The demand for a Bugatti is extremely low because this vehicle is unaffordable for most but the supply would be high because they only make a certain number of these cars per year and if you have the money you may want to sport this very fabulous vehicle. A non-price factor that causes possible change supply and demand would be safety. Safety is a big concern to me when I am going to purchase a new car. I am looking for a great safety rating because I need a car that will protect me and children in case of an accident. Safety should be key for everyone when they are thinking about purchasing a new car. I like to do my research before stepping into a dealership. I also have to consider would safety be better on an SUV or car. Research is key to getting a safe vehicle. I remember when Kia car came out the safety rating was horrible. The cars were made cheap and it definitely showed. From 1997 to 2001 the Kia vehicles had a lot of engine and transmission problems so there was no demand for those vehicles because no one wanted to invest in a vehicle that would bring them problems...
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...Average has given the better answer. b) 3 Moving Average has given the better answer. c) RMSE= SQRT of ( sum of (A-F)2 / n.o of years) 0.4 Weightage= SQRT(3102.247/12) = 16.078 0.5 Weightage= SQRT(2728.635/12) = 15.079 So we will choose 0.5 weightage result. Case Study # 2 Pg # 259 1) Model T was the first affordable car produced by the Henry Ford’s Ford Motor Company since its commencement. It was the first car launched by the Henry Ford to target middle class people and it was the first car which was produced in a large quantity in contrast to previous models which were launched as prototype. And now Mr. Mullaly is thinking in the same manner to come up with a economical passenger car model rather than new expensive sports car or truck model. Which will be manufactured in mass production and made available globally with limited variation to cater the changes in taste in different countries. So in both situations...
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