Question

Demand function specifies other factors that management will often consider, including the design and packaging of products, the amount and distribution of the firm’s advertising budget, the size of the sales force, promotional expenditures, the time period of adjustment for any price changes, and taxes or subsidies. For this discussion forum, consider your favorite consumer product (e.g. cell phone, car, cereal, restaurant, hair gel, etc.) and describe the variables that might be part of the demand function (i.e. substitute good, complementary good, income level, advertisement, consumer preference, etc.) for this product. How would you describe the elasticity of demand for this product – is it highly or somewhat elastic or inelastic? Why?

(need 300 words)

Answer 1

Product : Car

The Demand Function of car :

D(Luxury Car) = F { Income, Substitutes, tastes and preferences, features }

The elasticity of cars which is like a luxury good is highly elastic in the short run.

With a slight change in price, the demand would change as they are not needed for survival but is a part of luxury spending. Consumers would look for alternate sources like taxi, auto, 2 wheeler, etc in case of a price hike in short run. With limited resources, the consumers have to maximise utility. So preference will be given to other goods of more importance, i.e. the normal goods. Thus purchase of car which is a luxury good may be delayed in this case.

Further, if the price reduces, the consumers may also want to take the advantage of this price reduction. For example: a person who initially was buying a 2 wheeler after price reduction of car might find car a better option. With slight addition to his budget, he will be able to buy better product as cars are considered to be superior to 2 wheelers due to the additional safety they provide.