Question

Choose a product or company of interest to you. Imagine your boss asks you to determine the price elasticity of demand for your product. Explain at least three different factors that might make your task difficult. How might you get around those issues?

Answer 1

The three different factors that make my task difficult

Any change in these will make the price elasticity of demand also change as these are directly proportional.

1) Substitute product: In market there will be number of companies who act as substitute to my product. So it will be difficult for me collect data on all of them and price level at which they are selling the product.

2) Habits of people: Preferences and habits of people Change along with time which make my job difficult I can't say on what basis consumer of our product changed his preference or habit.

3)Income level : In any country only 10% of population will be rich and will at a peak level income level rest all will be at medium or below in the income. So I can't estimate the income level in the economy .

How I will overcome these three issues.

I will consider few companies which are acting as a rival company in market for our product and I will do my analysis depending on that. Rather than N number of companies better to consider a few companies.

Depending on the current trends and usage of people I will understand the preference of people and habits which will make my task easy as many people will be following the current trend.

Income level in the country cannot but consumption in the country is know depending on the consumption I will understand what is the standard of living of people.