Exam Preparation
W14 P21 Q2Discuss whether it is both possible and beneficial for a business to change the price elasticity of demand for its product. [12]小伙伴看到题目的第一反应一般都是:
答题思路Part 1 :先说下Benefial,这个大家比较熟悉了:● 如果PED是inelastic,那企业提价● 如果PED是elastic,那企业降价企业嘛,很粗暴的,怎么赚钱怎么来;那如果提价的同时能赚更多的钱,那就美滋滋了。于是企业一般会想方设法让自己的产品变得PED inelastic.

Part 2:讨论怎么改变PED。两个方法方法一:打广告目的:Habit forming;luxury -> necessity问题:广告很贵啊,而且不一定有用啊....同时,你真的很难改变一个东西的属性。
方法二:降价目的:lower proportion of income ;reduce number of substitutes问题:降价受到生产成本的限制,不能降太多的。以及,如果想通过降价来干掉竞争对手,你需要有很大的市场占有率才行。试想一下,现在市面上突然出现一种两块钱的手机,你会买么?
Part 3:PED的问题(evaluation)请小伙伴们记住PED的两个重要的limitations!1 PED很难去准确衡量2 PED是会变的(短期inelastic,长期elastic)Part 4:结论

As always,不要忘记在最后一段写上结论,简单总结一下之前说过的所有东西,有1分的喔!

福利! Sample Answer!
Part 1:Benefits of changing PED of products  [2]See notes above (Please draw diagrams)Part 2: Explain possibilities for business to change PED [6]Advertising a product can make it more price inelastic, because advertisement make a product more unique, in other words, not easily be displaced by any goods with similar price. Therefore, even if the price of the product is a little higher than its similar substitutes, the demand would not be largely influenced. However, this sort of promotion is really costly; and advertisement may be not effective.
Firms may also change the image of products to change PED, for example, firms may emphasize that the products are luxury in advertisement and change the package of the products.  However, it’s quite hard to change the people’s original feeling towards the products once they have accepted what kind of products they were.
Firms can also change PED by largely adjusting the price of products, goods on which higher proportion of income should spent is usually more price elastic, while goods on which lower proportion of income should spent is more price inelastic. However ,restricted by the cost of production, large change in price of a sort of products would be impossible in most of time.Large and powerful firms can change PED by forcing their competitors out of business, by strategies such as predatory pricing. The reduction in the number of competitors contributes less substitutes of the products they produced, the more PED inelastic the product is. However, it may require large power and influence of the industry and it should be oligopoly or monopoly in the industries.
Part 3:Evaluative comments [4]it’s really difficult (as it’s often costly) and unpredictable (real PED value is difficult to accurately measured) to increase revenue though changing PED. Meanwhile, PED vary over time: it is inelastic in the short term and elastic in the long term. There are more predicable and easy alternative measures to increase revenue by , for example, increase quantity demanded (advertisement, price cut or promotion)or lower cost of production(training , higher expenditure on employment scheme, hire expertise & experienced managers) .Part 4 : Conclusion