Principles of Economics and Entrepreneurship

Principles of Economics and Entrepreneurship

Price Increase Effects on Product Demand

Nothing will happen to the demand for the new product if the prices are increased by 5%. In economics, there is a precise definition for demand- It is not the number of products that people buy but what buyers are willing to buy at given prices over a particular period. Let’s assume the table represents the demand schedule, and the second figure is the corresponding demand curve. For instance, changes in price from $6 to $9 will have no impact on demand. Such is so because any demand level includes different prices and quantities.

The law of demand also explains why there is no change in demand due to the price increase. The law of demand avers that a price increase decreases the quantity demanded while demand remains the same (Razzolini et al., 2003).

Introductory Period Effects On Product Demand

The introductory period is when a product first launches in the market. The stage is characterized by marketing efforts to woo new customers. There is a slow growth rate in sales during the introductory period since most consumers do not know about the new product’s existence. The business is likely to make more losses than profits during the phase (Stark, 2019).

Having a short introductory means the business will not market a product sufficiently, which may adversely affect future demand for the product. Also, a short introductory period does not allow for enough feasibility tests regarding the impact of the new product on the broader business. If sales are low, the short introductory period will not allow the creation and testing of new strategies to improve sales. The demand for a new product will remain low until customers become aware of the product’s usefulness and benefits (Bayus, 1994).

Product Price Reduction Effects On Sales

According to Dean (1976), reducing prices may increase sales, but that is not obvious as it may sometimes adversely affect sales. Reducing pizza prices may reduce their market acceptance. This is because buyers may consider it not a serious alternative to substitutes and other competitive products. The business will need to overlook price reduction and consider different strategies to enhance sales volume.

Potential Economic And Noneconomic Forces

Non-Price Determinants of Demand

Once it is proven that a new product idea is sound, testing is concluded, and consumers are ready, it is time to launch a new product. Other than price elasticity, different economic and non-economic factors will affect the acceptability of the product in the global market, including demographics, availability of complementary, and others (Safiullin et al., 2015).

Demographics

Demographics refer to the proportion of a given population group, such as the young people and the elderly. An increase in young people positively influences products demanded by young people and vice versa.

Complimentary goods

A change in the price of a complementary good will affect the reception of a new product throughout its lifecycle. For instance, if the delivery price of pizza goes down, the demand for pizza will go up.

Income Availability

Income is an essential determinant of demand since it affects a buyer’s propensity to purchase. If there is an economic boom, people are likely to buy more pizza regardless of its price.

Future Expectations

Customers may alter their purchasing behavior now if they believe a market will change in the future. For instance, if they expect a constriction of pizza supplies in the future, they may demand more now.

References

Bayus, B. L. (1994). Are Product Life Cycles Really Getting Shorter? Journal of Product Innovation Management, 11(4), 300–308. https://doi.org/10.1111/1540-5885.1140300

Dean, J. (1976, November). Pricing Policies for New Products. Harvard Business Review. https://hbr.org/1976/11/pricing-policies-for-new-products

Razzolini, L., Shughart, W. F., & Tollison, R. D. (2003). On the Third Law of Demand. Economic Inquiry, 41(2), 292–298. https://doi.org/10.1093/ei/cbg008

Safiullin, L. N., Oduntsova, J. L., & Safiullin, N. Z. (2015). The Theory of Demand in the Conditions of Heterogeneity of Goods and Consumers. Procedia Economics and Finance, 24, 288–295. https://doi.org/10.1016/s2212-5671(15)00662-0

Stark, J. (2019). PRODUCT LIFECYCLE MANAGEMENT (VOLUME 1): a 21st-century paradigm for product realization. Springer Nature.

SULI, D., & Xhabija, G. (2013). The Effects of the Price Change on the Demand of Agricultural Products During Summer Time. European Journal of Sustainable Development, 2(4), 293. https://doi.org/10.14207/ejsd.2013.v2n4p293

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One of the topics you learned about economics in this first module is the price elasticity of demand. This is an important topic to you as a new entrepreneur because it will help you to price your products appropriately. This is because a change in price affects the demand for the product. Some companies assign a lower cost to a new product for a short period of time and then bump up the price when the introductory period is over, which impacts demand for the product.

Principles of Economics and Entrepreneurship

In a 2-page paper, explain the economic concept of elasticity of demand. In addition, answer the following four questions as they pertain to your business venture.

What will happen to demand for the new product when the price is raised by 5%?
Is there an impact on the demand for your product if the introductory period is too short?
How large a reduction in the price of a product is required to increase sales by 25 percent?
Besides elasticity of demand, what other economic and noneconomic forces might occur over time in the global market’s reception of your new product?
Keys to the Assignment

Explain your analysis using terminology and concepts introduced in this module.
Cite all sources and provide a reference list using APA format.
Proofread and edited the paper. The goal is zero errors.
Submit your paper to the dropbox by the due date for this module.
For help writing papers, citing sources, proper referencing, and so forth, use Trident University’s Introduction to APA-7th Edition.