M4 - REDUE ASSIGNMENT

University

Doughnuts

Doughnuts as new products are at the introductory phase at the new Dominion within Wal-Mart Inc., the corporation considered market related factors especially consumption, demand and price mechanisms in coming up with the decision of making doughnuts. Therefore, the product will be produced a long with the Pizzas which are the pioneer products since the company was started.

Price Elasticity

Price elasticity of demand (PED) refers to the measure of the responsiveness of quantity in demand to the price when prices change (McCormick, 2018). The factor mainly gives the percentage change in quantity demanded in response to the respective percentage change in price. However, Veblen and Giffen goods (Such goods are said to be against the law of demand) do not conform to the law. Thus, they have a positive elasticity as other product has negative elasticity. Pizzas, compared to doughnuts have a higher price elasticity of demand. They are therefore characterized by elasticity. This implies that the changes in price have a significant impact on the quantity demanded. However, some countries and individuals consider them as a necessity. In such situations, the product exhibits inelasticity.

Price Elasticity of Supply (PES): PES Refers to the measure of the responsiveness of the number of goods and services supplied to a variation or change in price. It may be fixed, inelastic or elastic. Thus, the quantity supplied may or may not respond to change in price. Dominion Pizzas have an inelastic price elasticity of supply. This is because it is a commodity whose production cannot be suddenly manipulated and it also takes time for it to be available. Besides, the primary raw material is dough which is supplied from their outlets and processing plants especially in Australia, Canada and United States (USA).

Factors Considered in Coming Up with the New Product

Availability of Substitutes: Substitutes serve as alternatives for available goods and services. Therefore, if there are available, the products tend to have more elasticity since price increase will result in a shift to other commodities thus less quantity is demanded. On the other hand, the amount of the substitute will be consumed in large amounts thus increasing the quantity required. The dough nuts serve as an alternative for Pizzas especially for those individuals who require cheaper fast foods.

Necessity: This describes the basic needs of human beings. Commodities which serve to satisfy basic needs such as food and clothing have no significant variation in demand due to price changes. However, those that are not basic for a human living are subject to consumption when prices are favorable, and less consumption is realized when prices are unfavorable (higher) to consumers. For the case of doughnuts, they are considered a necessity among low income citizens. On the other hand, Pizzas can be regarded as a luxury. This factor is relative, and it is much dependent on the value attached to the commodity by consumers.

Income Level: Low-income individuals tend to back off from high priced commodities. On the other hand, high-income persons may not relent from consumption of given products. Therefore, a commodity under consumption by low-income persons is subject to the higher PED, unlike the Commodity under consumption by High-income individuals. Pizzas are consumed by the high-income persons, and therefore, the doughnuts have been introduced as a way of attracting both the customers since they are relatively cheap.

Length and Complexity of Production: Products that require longer periods of manufacture or production have an inelastic PES as compared to those with shorter manufacturing periods. The doughnuts have a shorter production time as compared to Pizzas thus there can be optimum supply as per the demand.

Conclusion

The product will have a positive impact on the income generated by Wal-Mart Inc. and thus it is a viable idea which was considered advantageous by the company. Besides, it will find a higher consumption rate within the markets with middle and low level income individuals thus maximization of profits generated by the company.

References

Durham, C., & Eales, J. (2010). Demand elasticities for fresh fruit at the retail level. Applied Economics, 42(11), 1345-1354.

Lijesen, M. G. (2007). The real-time price elasticity of electricity. Energy economics, 29(2), 249-258.