Chapter 5 Reflections

Chapter five: Elasticity and It's Application.

In this chapter I learned about elasticities. Something is said to be elastic if the quantity demanded responds significantly to a change in price. Adversely, it is said to be inelastic if the quantity demanded does not change substantially due to a change in price. 
Years ago I used to frequent a local grocery store in my hometown in Texas. One day while shopping for groceries for a girls' weekend at the river, a certain sale caught my eye. It was a combo sale. It was something like 2 lb. pre-marinated fajitas, 1 pkg tortillas, a jar of salsa, 1 pkg shredded cheese, a bag of tortilla chips, a can of refried beans and a liter of Pepsi - for $10! Now usually I like to marinate my own meat, but this was a package deal I couldn't pass up, especially since the fajita meat I usually bought was around $7-8/lb.
This is an example of using cross-price elasticities and it got me to purchase something I normally wouldn't have. While the salsa, cheese, soda and tortillas were name-brand, the fajitas, beans and chips were store-brand. I am assuming they strategically paired the name-brand products with their store-brand products to try and boost sales of their own products. And guess what, IT WORKED! The store-brand's fajitas were tender and had great seasonings and let's face it, I didn't have to work as hard preparing it. From that point on I bought those fajitas many times - even without the sale. So it is safe to say that the demand for the store-brand fajitas increased, at least by four women, and possibly many more.
All of the topics in this chapter seemed to make sense to me. It might take me a while to be able to efficiently use the graphs or equations, but it all made sense. Something I did find particularly interesting was how total revenue was impacted by price elasticity of demand. I never really thought about it before, but it makes complete sense that when then demand curve is inelastic the extra revenue from selling at a higher price is greater than the lost revenue from selling fewer units. As opposed to if the demand curve were elastic, the extra revenue from selling at a higher price would be less than the lost revenue from selling fewer units.

That's all for now...
Ciao!