Question

Consider a retailer that is curating the selection of goods to make available for sale. How might they use cross-price and income elasticities to inform their choices?

Answer 1

The aim of the retailer is that all of his products get sold. To maximise sales, the retailer must use the concept of cross price elasticity and income elasticities.

This means, one must keep goods in 2 or more price ranges for each type of product. When the person’s income rises, they tend to opt for a higher value product and incase of lowering, it will buy lesser value product.

Like if there are 2 packs of Lays with varied weight(50g,100g and 200gm). The customer will buy the largest value pack of 200gm if the income is favourable. But if income reduces, he will opt for a lower value product. But the customer also has perspective of maximising gains and so will buy the 100gm product instead od 50gm. Had we kept only one type of product, we would have either lost a customer due to unavailability or the customer might have purchased a low value product than his willingness.

Further, complements of products/ alternatives must be kept. Within crease in price of one, the consumer will but another good. This will ensure that customer does not leave empty handed as he will have all ranges of product.