Economics There Are a Number of Variables Essay

Pages: 2 (682 words)  ·  Bibliography Sources: 2  ·  File: .docx  ·  Topic: Economics

Economics

There are a number of variables that can be included in a regression equation to estimate demand for a durable consumer good (No author, 2011). The general state of the economy -- GDP -- is a good measure, as are other key economic measures such as unemployment and new housing starts. These measures are best because consumers will often increase purchases of durable goods in good economic times, but will delay such purchases when the economy is facing difficulty. I would include different variables for "fast-moving" consumer goods. These goods are less subject to fluctuations related to the health of the economy. Population growth and demographic variables such as number of households would be more important demand variables for fast-moving consumer goods. In both cases, population growth is a good variable since demand is impacted by the number of people there are dirtying dishes.

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There are things the producer can do to change the price elasticity of demand. Price is just one reason why people buy a product. Underlying this theory is that consumers are rational and make decisions based on the greatest utility that a good provides for its price. The utility side of that equation is where the firm can impact on the price elasticity of demand for the good. One technique is to focus marketing efforts on differentiation -- brand image, product quality, styling or other such variables. The lower the degree to which consumers base their purchase decisions on price, the lower the price elasticity of demand will be. This is because the good will be less substitutable if its attributes are deemed to be sufficient differentiated from those of competing products (Investopedia, 2011). Any focus on attributes other than price will encourage consumers to pay less attention to price when making their purchase. This is not an easy task, as consumers have become accustomed to thinking in terms of price, but over time it can be done with sufficient marketing campaigns.

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