ANNEX B

Business Economics MBA – DL Assessment


Contents

QUESTION 1A        

Introduction        

Key Demand Side Drivers of Price For Vehicles        

Conclusion        

QUESTION 1B        

Introduction        

Effectiveness of Price Discounting During Recession        

Price Discrimination        

Conclusion        


References


QUESTION 1A

INTRODUCTION

Price Elasticity measures the response of demand to a change in price (Begg & Ward), and adopting pricing strategies relevant to a particular product or service remains one of the biggest challenges faces by managers.

The demand side drivers of price must therefore be clearly understood, taking into account the end objectives, so as to measure performance against these.

It is however worthwhile to note that from the case study [Ref. A], the demand for GM cars is seen to be price elastic as an increase in car prices – by way of retracting ‘employee discounts’ in this case – resulted in less demand.

Conversely a decrease in the prices would have resulted in an increase in the demand for the cars.  It can be inferred that the demand would have been either anticipated to be very high, or would have been very high from historical trends as the discount scheme was for a limited time, to prevent the risk of potential financial losses as a result of excessive discount car sales.

KEY DEMAND SIDE DRIVERS OF PRICE FOR VEHICLES

The figure below shows the price elastic demand curve for GM vehicles.  In economics, the price elasticity of demand is a measure of the sensitivity of quantity demanded to changes in price.

          (a) Movements in the Demand Curve                    (b) Shifts in the Demand Curve

Several factors would affect the demand of GM vehicles, which would ultimately lead to an increase or decrease in the price, which would invariably result in the demand moving or shifting to the right or left.

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Amongst these include:

The Effect of Market Conditions on GDP Growth

The gross domestic product (GDP) is a basic measure of a country’s overall economic output (Wikipedia, 2009), and a key determinant in the demand side drivers of price for vehicles.  There is a positive correlation between the GDP growth rate and vehicle demand, which means that vehicle demand, increases with increases in GDP growth.  

The economic downturn is a perfect example of how a decline in GDP growth (with an increase in unemployment, and inflation (resulting from prices being hiked to meet the increase in manufacturing costs ...

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