Price Elasticity - Chocolate Essay Example
Economics assignment Take a brand study its price elasticity of demand and relate it to revenue - Price Elasticity introduction. Say how the REVENUE of the product increases or decreases because of the ELASTICITY. The elasticity of demand measures the responsiveness of the quantity demanded of a good, to change in its price, price of other goods and change in consumer’s income. Accordingly elasticity of demand is of three types: Price elasticity of demand Income elasticity of demand Cross elasticity of demand Price elasticity of demand: it is the ratio of the percentage change in quantity demand of a commodity to the percentage change in its price.
Price elasticity of demand denotes the ratio at which the demand contracts with a rise in price and extends with a fall in price. Ed=(percentage change in quantity demanded)/(percentage change in price) Ed=? Q/? P? P/Q; where P=price; Q= quantity demanded. Price elasticity of demand is of five types: Perfectly inelastic(Ed=0) Perfectly elastic(Ed=? ) Relatively inelastic(Ed1) Unitary elastic(Ed=1) Cadbury dairy milk chocolates: It is a brand of chocolate bar made by the Cadbury plc unit of Kraft foods. It first started sales in UK in the year 1905 and thereby came to India in the year 1948.
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Cadbury has launched many products of which Cadbury dairy milk is the most successful chocolate bar in India. Cadbury dairy milk is one brand in India which witnesses a lot of brand loyalty. THE PRICE ELASTICITY OF DAIRY MILK CAN BE STUDIED AS FOLLOWS: Since the product owes a lot of brand loyalty to its name, thus if we increase the price of Cadbury dairy milk by 20% the quantity demanded will decrease by say 5% only i. e. the proportionate change in price and quantity demanded will not be equal. If the consumption of Cadbury dairy milk is say 20 units per day from a particular region in Delhi at a price of Rs. 0, initially. And then the prices of Cadbury dairy milk rise by 20% i. e. the new price quoted for dairy milk would be Rs 20 + 20% of 20=Rs. 24. At this price the quantity demanded falls by 5% i. e. the consumption would come down by 1unit(20-5% of 20=1) i. e. the total consumption after the price rise will be 19 units per day. Thus, the price elasticity for dairy milk would be: Ed=? Q/? P? P/Q ? ? 20/20 0. 25 ;where Change in quantity demanded=1 Change in price = Rs. 4 Initial Price = Rs. 20 Initial QD = 20 units Thus price elasticity of dairy milk chocolate is 0. 25 which is