Elasticity Paper
Elasticity Paper
ECO/365
August 11, 2014
Michael Blakley
Elasticity Paper
Introduction
A consumer walking through the grocery store intent on purchasing the necessary ingredients for a peanut butter and jelly sandwich notices the prices for all brands of peanut butter are higher than expected. Will this consumer choose to not purchase peanut butter and buy bread and jelly only? By raising the price of peanut butter the retailer risks selling less bread and jelly in addition to reduced peanut butter sales. If the same consumer went to another grocery store and found only one brand of peanut butter priced higher than the others, the elasticity principle of substitution will apply. The consumer will pick a different brand of peanut butter and follow his original plan to purchase bread and jelly.
Complementary Products
Complementary products are, "goods used in conjunction with other goods" (Colander, 2013, pg.136). The law of elasticity in relation to complementary products shows that when the price of a product increases or decreases it will have an impact on the demand for complementary products, in this case resulting in lower sales of those products. In the example above the desired meal is a peanut butter and jelly sandwich. The elasticity in the price of peanut butter will force the consumer to spend more money and buy the peanut butter with its complementary products of jelly and bread. If the elasticity of the price increase is too great for the consumer and the consumer chooses to purchase tuna fish, jelly manufacturers will see reduced sales.
Manufacturers and retailers must understand the relationship between their products and the complementary products of their product. Another example of complementary products is an ink jet printer and the ink cartridges (Living Economics, 2013). The law of demand states that when the price of an inkjet printer falls, then the quantity demanded will rise. When consumers purchase more printers,
ECO/365
August 11, 2014
Michael Blakley
Elasticity Paper
Introduction
A consumer walking through the grocery store intent on purchasing the necessary ingredients for a peanut butter and jelly sandwich notices the prices for all brands of peanut butter are higher than expected. Will this consumer choose to not purchase peanut butter and buy bread and jelly only? By raising the price of peanut butter the retailer risks selling less bread and jelly in addition to reduced peanut butter sales. If the same consumer went to another grocery store and found only one brand of peanut butter priced higher than the others, the elasticity principle of substitution will apply. The consumer will pick a different brand of peanut butter and follow his original plan to purchase bread and jelly.
Complementary Products
Complementary products are, "goods used in conjunction with other goods" (Colander, 2013, pg.136). The law of elasticity in relation to complementary products shows that when the price of a product increases or decreases it will have an impact on the demand for complementary products, in this case resulting in lower sales of those products. In the example above the desired meal is a peanut butter and jelly sandwich. The elasticity in the price of peanut butter will force the consumer to spend more money and buy the peanut butter with its complementary products of jelly and bread. If the elasticity of the price increase is too great for the consumer and the consumer chooses to purchase tuna fish, jelly manufacturers will see reduced sales.
Manufacturers and retailers must understand the relationship between their products and the complementary products of their product. Another example of complementary products is an ink jet printer and the ink cartridges (Living Economics, 2013). The law of demand states that when the price of an inkjet printer falls, then the quantity demanded will rise. When consumers purchase more printers,