Price Elasticity Scenario
Carlos Cruz is an inventor entrepreneur in High Tech Digital Industries which is conducting research to develop a strategic business. The main idea is to market a new product based on the technology. Its taking the words printed, for example: books or text materials, and create a digital product that people can see or hear. The profitability of the business is based on that we are in a world constantly globalized, where digital replaces the traditional. Carlos is assessing its business strategy to consider some basic decisions as to the operation of the market.
The concept of scarce resources is essential to economics. According to Mc Connel-Brue (2008), ???Society has limited or scarce economic resources meaning all natural, human, and manufactured resources that go into the production of goods and services???. Due to our resources being limited, we must decide what we will have and what we must do without. Similarly, the scenario presents various resource options Carlos can use to digitize books. Carlos must decide between continuing to do the work himself or outsourcing it in Puerto Rico at approximately $10 an hour or overseas at $2 an hour. Carlos realizes that his own capacity to continue to digitize books is limited or scarce and had poor use of his time.
Evaluating business strategy allowing to Carlos offer an attractive product for consumers, these economic principles that are present on the stage can be identified. First the model of economic here is the market economic. Some of the basic principles are the concept of supply and demand. Carlos would have to assess what price the product set and those who need to meet the demand of the market. Taking into account the law of demand which establishes that as price increases, the demanded amount decreases, because consumers dont want to pay the higher cost and choose for alternative products or substitutes. And taking into account the law of the offer which states that if the price of a good increases, providers try to maximize profits by increasing the amount of the product sold.
Opportunity cost is a value or utility that is sacrificed by choosing an alternative to and despise an alternative B taking a way means that it renounces the benefit offered by the discarded road. Carlos has taken the decision to sacrifice many of their daughter football games in order to maintain a level of effective work in High Tech Digital Industries. Over time Carlos would have to assess whether it is effective to dedicate the majority of their business instead of quality time with the family. Other concept is substitute goods that can be used to satisfy the same needs, one rather than the other. Carlos in their research to improve business strategy had to study which may substitute could have on its market in order to establish the competitive strategy of his business, Books digitized audio vs CD.
The income elasticity of demand “measured response rate of demand due to the amount of an increase or decrease in the income of consumers.” (economics.about.com, 2013). While the price elasticity of demand “measures the response rate of the amount requested due to a change in price.” (economics.about.com, 2013). In the analysis of business Carlos Cruz should be considered to make a series of adjustments in the price of the digitized books according to their title of author in order to observe the elasticity of that change in relationship the immediate effect that may have on their sales. Carlos can test both price increase and decrease and whatever gain more demand will be his pricing strategy in establishing his business.
In conclusion, the importance of the economy in the implementation of a strategic business plan can be determined. To assess economic concepts that directly affects the viability of the business both in economic terms and in the competitive aspect.
Economics. About.com. (2011). Income elasticity of demand. Retrieved from
Economics. About.com. (2011). Price elasticity of demand. Retrieved from
McConnell?Brue, (2008). Economics: principles, problems and policies (17th ed.)
Introduction to Economics and the Economy. (p.10).
University of Phoenix Materials (2013). Carlos Cruz??™s Price Elasticity Scenario.