Analyzing Elasticity for Sales Growth in a Growing Economy
TITLE
Assess whether the concept of price elasticity of supply or cross elasticity of demand will be the more useful to a business wanting to increase its total sales in a growing economy.
ESSAY
Title: Assessing the Usefulness of Price Elasticity of Supply and Cross Elasticity of Demand in Increasing Total Sales in a Growing Economy
Introduction:
In a growing economy, businesses seek strategies to increase total sales. This essay evaluates the concepts of price elasticity of supply and cross elasticity of demand in assisting businesses to achieve this objective.
Price Elasticity of Supply:
💥 Price elasticity of supply aids businesses in decision💥making regarding stock holding and product focus.
💥 Helps in determining productive capacity and the need for technological investment.
💥 However, its effectiveness depends on the accuracy of data and may not be relevant in a growing economy.
💥 Products with inherently inelastic supply may limit its utility for certain goods.
Cross Elasticity of Demand:
💥 Enables businesses to understand the relationship between their product and others.
💥 Assists in developing pricing strategies based on the closeness and dynamics of product relationships.
💥 But, reliance on accurate data may be a challenge in a dynamic, growing economy.
💥 Changes in pricing may not always be viable due to fixed cost structures or other variables influencing demand.
Evaluation:
💥 In a growing economy, cross elasticity of demand may be more effective in increasing total sales due to its focus on product relationships and pricing strategies.
💥 Consideration of alternative concepts like YED could further enhance the assessment of sales growth potential.
💥 A justified conclusion should be drawn based on the likely effectiveness of both measures, considering the context of a growing economy.
Overall, businesses aiming to increase total sales in a growing economy may find the concept of cross elasticity of demand more useful due to its flexibility in responding to market dynamics and product relationships.
[Word Count: 294]
References:
💥 Unified document on Economics Mark Scheme for Cambridge International Examinations, October/November 2023.
SUBJECT
ECONOMICS
PAPER
A level and AS level
NOTES
Assessing whether the concept of price elasticity of supply or cross elasticity of demand will be the more useful to a business wanting to increase its total sales in a growing economy involves understanding and analyzing the implications of each concept.
Analysis of price elasticity of supply:
💥 The usefulness of price elasticity of supply depends on the type of goods and the time horizon involved (short run or long run).
💥 It can help businesses with stock holding decisions and prioritizing products.
💥 Decisions about productive capacity and technology investments can also be informed by price elasticity of supply.
💥 However, the accuracy of the data used to calculate the value is crucial.
💥 The value may become less relevant over time, especially in a growing economy.
💥 Goods with naturally price inelastic supply may limit the utility of price elasticity of supply.
Analysis of cross elasticity of demand:
💥 Cross elasticity of demand helps businesses understand the relationship between their product and others, such as whether they are complements or substitutes.
💥 It guides decisions on how quickly and to what extent a business should react to changes in competitors' prices.
💥 Developing a pricing strategy to boost sales opportunities is facilitated by cross elasticity of demand.
💥 Data accuracy issues may arise in a rapidly growing economy, affecting the relevance of cross elasticity values.
💥 Businesses may face constraints in leveraging the data to adapt pricing if their cost structure is inflexible.
💥 Factors beyond cross elasticity of demand, like brand loyalty, could be more influential.
Evaluation (AO3):
💥 Evaluate the likely effectiveness of both concepts in increasing total sales, particularly in a growing economy.
💥 Consider alternative concepts like income elasticity of demand to assess potential sales growth.
💥 Provide a justified conclusion on which concept is likely to be more effective.
Candidates should focus their responses on the relevance of the concepts to a business in a growing economy to achieve higher marks. Responses that lack consideration of a growing economy or ignore the drawbacks of at least one concept are unlikely to score beyond Level 2.