Question

*******Information to know prior to the questions: The product being offered in fresh produce sold in a rural area in the midwest. I'm unsure how to answer these questions relating to the topic so any help would be much appreciated. Thank you!!*******

Part I: The own-price elasticity of demand.

Questions:

1. What can you tell about the own-price elasticity of demand for the product being offered? Why?

2. How does price elasticity of demand help in business decision making (pricing decision)?

3. List some strategies to reduce the own-price elasticity of demand.

Part II: Supply

Questions:

1. Get to know the competition. Since we can observe only one determinant of supply - the number of sellers- evaluate how large the supply is, in other words, evaluate the degree of competition among sellers in the market being served. Who are the competitors? Do not forget about online competitors.

2. How does market demand and supply affect market prices?

Here is the case:

When trying to decide what type of small business to open, I came to the conclusion that it would be beneficial in my area to open a shop that would sell fresh produce in a small rural town in central Illinois. The town could immensely benefit from a business like this one, as the townspeople currently travel to neighboring counties to obtain these items, and that can be a bit of an inconvenience for some individuals.

Answer 1

1) the own price elasticity of demand for the product in this case will be <1. Because as the information given in the question, people from Illinois go to neighborhood country to get fresh produce. That means there is lack of competition there , for fresh produce. So the demand will be less elastic.

2) price elasticity of demand is one essential tool in determining your business decisions. If there is much competition in the market, the elasticity will be higher and it will not give as much benefit as a less competitive market will give. So price elasticity gives a clear idea whether a price rise or fall will benefit the business or not.

3)if one wants to reduce the price elasticity of demand for their product then they can make their product unique and better as compared to others and always take a better pricing decision looking at the demand condition.

4)the supply is small and limited in central Illinois as there are not any other person who is selling fresh produce at that area. But in the neighborhood the competition is huge and also people can order from online sources which makes the market more competitive.

5) the market demand and supply are the main determinants of prices. As the demand for something increases more than its supply, price of the same product rises &vice versa.