Products, Services, And Prices In The Free Market Economy
Products, Services, and Prices in the Free Market Economy
University of Phoenix
Products, Services, and Prices in the Free Market Economy
The law of demand tells us that consumers will buy more of a product when its price declines and buy less when its price increases. In order to make a profit, a company or business owner has to decide whether to decrease or raise the price of his product in order to increase revenue. Deciding which route to go with the price weighs heavily on the price elasticity of the product. The price elasticity of demand accounts for the responses of consumers to the price change. "For some products, like restaurant meals, consumers are highly responsive to price changes," (McConnell & Brue, 2004, p. 356). They may order other items or even go to another restaurant. If the customer's favorite dish is unique and cannot be found easily at another location, then the response to the change in price may be different.
This paper will focus on a sandwich, The Cuban, that is made by A's Food Court in Hudson, Florida. This fast food restaurant has been in business for 20 years, and under new ownership for the past year. The new owners have increased the price of the sandwich several times, and the loyal customers are still purchasing at the same rate. This paper will analyze the price elasticity of demand to determine whether to increase the cost of the sandwich further or reduce it to gain revenue.
Over the past year, since new management took over A's Food Court, the popularity of The Cuban has only increased. The management has recognized the opportunity they have in this unique sandwich and made use of its ever-growing fan base. The price trend of the sandwich seems to be inelastic. No matter how high the management has raised the price for the sandwich in the past, the demand for it has not lessened. Considering the fact that customers enjoy the sandwich enough to continue to order it, despite the...
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