Economic Principles & Decision Making
Problem A:
As discussed in Module 1, Schmeckt Gut plans to introduce the Schmeckt Besser energy bar on the
market.
1. In your own words, what is the importance of the topic ‘Elasticities’ for this undertaking?
Explain this to the Board of Schmeckt Gut.
2. What do you suggest the Board instruct the Schmeckt Gut Research Department to do
to ensure a smooth introduction of the Schmeckt Besser energy bar. Your answer
should be related to the topic of Elasticities.
Solution
Based on the given information, it is apparent that the company Schmeckt Gut is planning to introduce a new product in the market in the form of Schmeckt Besser energy bar. A key role in the introduction of this new product would be played by the concept of elasticity based on which the underlying price of the product needs to be determined. This is a pivotal aspect which needs to be taken into consideration so as to ensure that the launch is successful.
Elasticity as a concept refers to the change of the demand in the concerned product with regards to the change in a particular factor. Since these factors could be manifolds such as underlying price, income level of consumers or price of other goods, hence there are various types of elasticity that ought to be considered. The most common amongst these is the price elasticity of demand which is defined as the percentage change in quantity when there is a unit percentage change in the price of the product (Cole-Ingait, nd). For products or services which tend to follow the law of demand, price elasticity would be negative. This is because when there is an increase in the price, the demand of the underlying product or service tends to decrease. It is noteworthy that price elasticity of demand of certain products can also be positive in which case the increase in price would lead to an increase in the quantity demanded (Green, nd).
(I.C. AH11 8445)