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Product Elasticity: Impact of Substitutes

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What impact does the availability of substitutes have on a product's elasticity? Does this alone explain the difference between the co-efficient of beef and eggs? Why or why not.

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Solution Summary

The solution determines what impact the availability of substitutes have on a product's elasticity.

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Elasticity means responsiveness. Price elasticity of demand is the degree of responsiveness of demand to a given change in price. This economic concept shows how buyers are affected by the pricing decisions of sellers or marketers.

Marketers use pricing decisions as one of the tools to influence demand, and therefore increase revenues and the chance of the company to earn income. At times, because of the intention to significantly affect revenues, a marketer decides to increase the price. However, buyers may respond too much by buying less or by buying less frequently. Their degree of responsiveness is measured by the price elasticity of demand as shown by the coefficient of elasticity (e).

When the marketer increases the price of goods and services, a normal ...

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  • Bachelor of Science in Business Administration, University of the Philippines
  • Master in Business Administration, Saint Mary's University
  • Doctor of Philosophy in Education, University of the Philippines
  • Doctor in Business Adminstration (IP), Polytechnic University of the Philippines
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