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Determining Kellogg’s Corn Flakes' Elasticity Of Demand

758 words - 3 pages

To study whether Kellogg’s Corn Flakes is a product with price elastic of demand or price inelastic of demand, the following are some of the vital determinants that can be relied on:
 Determinants that affect demand of elasticity
a) Number of availability of substitute
In general, the bigger the number of substitute goods that are available, the greater the price elasticity of demand. In such event, there are various brands of similar goods available in the market which is basically suitable for consumers to consume as a replacement product for one another, making the demand for the particular brandbecomeshighly elastic.(McConnell, Brue, & Flynn, 2012)
b) Proportion of income
According to Lau, L.S (2014), when an item represents only a relatively little part of the total budget, consumers tend not to focus too much on its prices. Hence, the price elasticity of the item becomes inelastic for buyers.
c) Time
Goods tend to have more elastic demand over longer time horizons as the longer the time period involved, the flexible is the adjustments that consumers can make (Lau, L.S, 2014). Consumer often takes time to adjust with the changes in prices. For instance, when the price of a product increases, consumers need time to look for and experiment with other products to see whether they are suitable and acceptable. (McConnell, Brue, & Flynn, 2012)
d) Necessity versus luxury
Basically, the more that a good is considered to be a “luxury” rather than a “necessity”, the greater the price elasticity of demand will it be. By definition, it can be described as something that can be forgone easily. The consumption of electricity is one of the best examplesin reality. People find it difficult to get along without the supply of electricity. Therefore, an increasing in price will not significantly deduct the usage of electricity in a household.(McConnell, Brue, & Flynn, 2012)
e) Competition for the same product
Some businesses face highly price elastic demand for their products. This is because they are in a very competitive markets, where their product is either identical (for example: perfect substitutes) or slightly different from those produced by other sellers in the market. They have to come out with a comprehensive marketing strategy in order to stand for a bigger share among all the competitors in the market....

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