Elasticity Eco 1043 (Group 3)

Rauzah Zulkefle

5 Jun 202211:10

Summary

TLDRThis video presents an insightful group assignment on the concept of elasticity, focusing on strategies for businesses to increase profits post-pandemic. The group explores various scenarios, including increasing or decreasing prices, and their impacts on consumer behavior. They delve into price elasticity, explaining different types such as perfectly inelastic, perfectly elastic, unitary, elastic, and inelastic demands. Further, they discuss cross-price and income elasticity, illustrating how changes in income or related product prices affect demand. The presentation concludes with the significance of understanding price elasticity for small and medium enterprises, using examples like Starbucks and Facebook to demonstrate strategic pricing decisions.

Takeaways

📈 The group discusses strategies to increase profit post-pandemic, considering both increasing and decreasing prices.
💼 They suggest that higher prices might work for some due to people working from home and having more time for online shopping, while lower prices could attract those who lost jobs and need to save.
🧘‍♂️ The script introduces the concept of price elasticity of demand, explaining how changes in price affect the quantity demanded.
🔍 The group details different types of price elasticity: perfectly inelastic, perfectly elastic, unitary, elastic, and inelastic demand, providing examples for each.
🔄 They explain cross-price elasticity, discussing how the price of one good affects the demand for another, either positively or negatively, and when there is zero effect.
💰 The script delves into income elasticity of demand, showing how consumer income influences demand for certain goods, and categorizes it as positive, negative, or zero.
🏪 The importance of understanding price elasticity for small and medium enterprises (SMEs) is highlighted, especially for decision-making in a monopolistic market.
🌐 Examples of SMEs like Starbucks, Facebook, Adidas, and Petronas are given to illustrate how they might use knowledge of price elasticity.
📊 The group emphasizes that monopolies use price discrimination, setting different prices for consumers based on the elasticity of demand for their products.
🙏 The presentation concludes with a thank you note, expressing gratitude for the audience's time and hoping for a better understanding of the topic.

Q & A

What is the main topic of the group assignment presented in the video?
-The main topic of the group assignment is 'Elasticity', specifically focusing on price elasticity of demand and its various aspects.
How many group members are there, and who are they?
-There are four group members: the first presenter, Ctrl Z Zukifli, the second presenter, Nerdina Binti Abdul Rashid, the third presenter, Aman Hanani Binti Mohammed Hamdan, and the last presenter, Yasmin Patricia.
What are the two scenarios discussed to increase profit during the pandemic?
-The two scenarios discussed are increasing the price, targeting people who still earn their full salary and have time for online shopping, and decreasing the price to attract customers who have lost their jobs and are looking for lower-priced goods.
What is the definition of price elasticity of demand as presented in the video?
-Price elasticity of demand is defined as the degree of responsiveness of quantity demanded to change in price.
What are the five types of price elasticity of demand mentioned in the video?
-The five types are perfectly inelastic demand, perfectly elastic demand, unitary demand, elastic demand, and inelastic demand.
Why is perfectly inelastic demand represented by a vertical graph?
-Perfectly inelastic demand is represented by a vertical graph because the quantity demanded does not change regardless of the price change, as seen with diabetic patients who cannot alter their consumption based on price.
What is the significance of cross-price elasticity of demand?
-Cross-price elasticity of demand measures the degree of responsiveness of the quantity demanded of one good to a change in the price of another good.
How does positive cross-price elasticity of demand differ from negative cross-price elasticity?
-Positive cross-price elasticity occurs when goods are substitutes for each other, and an increase in the price of one leads to an increase in demand for the other. Negative cross-price elasticity occurs with complementary goods, where an increase in the price of one leads to a decrease in demand for the other.
What is income elasticity of demand and what are its types?
-Income elasticity of demand measures the relationship between consumer income and the demand for a certain good. Its types include positive income elasticity (unitary, inelastic, and elastic), negative income elasticity, and zero income elasticity.
Why is understanding price elasticity important for small and medium enterprises (SMEs)?
-Understanding price elasticity is important for SMEs as it helps them make informed decisions about pricing strategies, such as whether to set high or low prices based on the elasticity of demand for their products.
What is an example of a monopoly and how does it relate to price elasticity?
-A monopoly is a firm that is the sole seller of its product without close substitutes and has market power to influence prices. Monopolies consider the nature of demand, charging higher prices to consumers with inelastic demand and lower prices to those with elastic demand.

Outlines

00:00

📈 Introduction to Elasticity and Pricing Strategies

The video begins with a group presentation on the topic of elasticity, focusing on strategies to increase profit post-pandemic. The group introduces its members and their roles in the presentation. The first presenter discusses two strategies: increasing the price to target consumers who still have jobs and can afford to spend on luxury items like VR phones, and decreasing the price to attract those who have lost their jobs and are looking for cheaper alternatives. Examples such as clothing with easy access for vaccinations and essential items like face masks are given to illustrate these points.

05:00

📊 Understanding Price Elasticity of Demand

The second presenter delves into the concept of price elasticity of demand, defining it as the responsiveness of quantity demanded to changes in price. The presenter outlines different types of elasticity: perfectly inelastic demand where quantity does not change with price, perfectly elastic demand where a small price change leads to an infinite change in quantity, unitary demand where price and quantity changes are proportionate, elastic demand where quantity changes more than proportionally, and inelastic demand where quantity changes less than proportionally. Examples such as diabetic patients' need for medication, the demand for water park tickets, and the necessity of petrol despite price changes are used to clarify these concepts.

10:02

🔗 Cross-Price and Income Elasticity of Demand

The third presenter explores cross-price elasticity of demand, explaining how it measures the responsiveness of the quantity demanded of one good to a change in the price of another good. Three types of cross-price elasticity are discussed: positive (substitute goods), negative (complementary goods), and zero (unrelated goods). The presenter also covers income elasticity of demand, which measures how quantity demanded for a good changes in response to changes in consumer income. This can be positive, negative, or zero, depending on whether the good is a normal, inferior, or necessity good, respectively.

🏢 Price Elasticity's Impact on Small and Medium Enterprises

The final presenter addresses the importance of price elasticity of demand for small and medium enterprises (SMEs). The discussion includes the strategic decisions monopolies make based on elasticity, such as price discrimination, where they charge different prices to consumers based on their elasticity of demand. Examples of SMEs like Starbucks, Facebook, Adidas, and Petronas are mentioned to illustrate how these businesses might adjust their pricing strategies in a competitive market.

Mindmap

Keywords

💡Elasticity

Elasticity in economics refers to the measure of how sensitively a variable responds to changes in another variable. In the context of the video, it is used to discuss how changes in price affect the quantity demanded of goods, which is a central theme. For example, the video discusses 'price elasticity of demand', where the responsiveness of quantity demanded to changes in price is measured, and different scenarios like increasing or decreasing prices during a pandemic are explored.

💡Pandemic

A pandemic refers to a widespread infectious disease affecting a large number of people across multiple geographic regions. The video uses the pandemic as a scenario to discuss economic decisions, such as increasing or decreasing prices, to recover from economic downturns caused by the pandemic. It illustrates how consumer behavior might change during such times, affecting the elasticity of demand.

💡Price Elasticity of Demand

Price Elasticity of Demand is a concept that describes the degree to which the quantity demanded of a good responds to a change in its price. The video explains this concept by discussing different types of elasticity, such as perfectly inelastic, perfectly elastic, unitary, elastic, and inelastic demand. It uses examples like the demand for face masks during a pandemic to illustrate how price changes can affect consumer purchasing decisions.

💡Cross-Price Elasticity of Demand

Cross-Price Elasticity of Demand measures the responsiveness of the quantity demanded of one good to a change in the price of another good. The video explains this by discussing how the price change of one product can affect the demand for another product, either positively or negatively. For instance, an increase in the price of one beverage might lead to an increase in demand for a substitute beverage.

💡Income Elasticity of Demand

Income Elasticity of Demand is a measure of how quantity demanded for a good changes when there is a change in consumer income. The video explains this concept by discussing how different types of goods may have varying income elasticities, such as luxury goods being more sensitive to income changes than necessities.

💡Monopoly

A monopoly exists when a single seller controls the supply of a particular product or service with no close substitutes. The video discusses how monopolies can use their market power to influence prices, often considering the price elasticity of demand when setting prices. It mentions that monopolies may charge different prices to different consumers based on the elasticity of demand.

💡Price Discrimination

Price Discrimination is the practice of charging different customers different prices for the same product or service. The video explains that monopolies often pursue price discrimination, setting higher prices for consumers with inelastic demand and lower prices for those with elastic demand, as a strategy to maximize profits.

💡Substitutes

Substitutes are products or services that can be used in place of one another. The video discusses how the availability and price of substitutes can affect the demand for a product. For example, if the price of coffee increases, consumers might switch to tea, which is a substitute, if they are more price-sensitive.

💡Complementary Goods

Complementary goods are products that are often used together. The video explains that changes in the price of one complementary good can affect the demand for another. For instance, an increase in the price of sugar might lead to a decrease in demand for tea, as they are often consumed together.

💡Income Elasticity of Normal Goods

Income Elasticity of Normal Goods refers to the situation where the quantity demanded for a product increases as income increases, but not as much as the income itself. The video uses examples like food and clothing to illustrate this concept, explaining that as people earn more, they may buy more of these goods, but the increase in quantity demanded is proportionally less than the increase in income.

💡Income Elasticity of Luxury Goods

Income Elasticity of Luxury Goods is when the quantity demanded for a product increases more than proportionally with an increase in income. The video gives examples like iPhones, gold, and new cars, indicating that these are items for which demand grows significantly faster than income as consumers become wealthier.

Highlights

Introduction of group members and their roles in the presentation.

Exploration of strategies to increase profit post-pandemic: increasing prices for those still earning and decreasing prices for those seeking affordability.

Discussion on the potential for online shopping to attract consumers with more time at home.

Innovations by companies to facilitate vaccination, such as clothing designs with easy access for injections.

Analysis of price elasticity of demand and its impact on consumer behavior.

Definition and examples of perfectly inelastic demand, where quantity does not change with price.

Explanation of perfectly elastic demand, where small price changes lead to significant quantity changes.

Unitary demand elasticity, where price changes lead to proportionate changes in quantity demanded.

Elastic demand, characterized by larger percentage changes in quantity demanded in response to price changes.

Inelastic demand, where significant price changes result in smaller percentage changes in quantity demanded.

Introduction to cross-price elasticity of demand and its types: positive, negative, and zero.

Examples of positive cross-price elasticity, where goods are substitutes for each other.

Examples of negative cross-price elasticity, typically seen in complementary goods.

Zero cross-price elasticity, where goods are unrelated and price changes do not affect demand.

Income elasticity of demand, measuring the relationship between consumer income and demand for goods.

Positive income elasticity, indicating a direct link between income and demand for goods.

Negative income elasticity, where demand for certain goods decreases as income increases.

Zero income elasticity, applicable to necessity goods whose demand is unaffected by income changes.

Importance of price elasticity of demand for small and medium enterprises in decision-making and pricing strategies.

Examples of monopolies and their pricing strategies based on demand elasticity.

Conclusion and thanks to the audience for watching the presentation.