Demand happens to be one of the fundamental concepts of economics. It refers to the quantity of a service or product that is desired by buyers. The amount of product that the buyers are willing to purchase at a given price is known as quantity demanded ("4.1 Putting Demand and Supply to Work – Principles of Macroeconomics", 2019). Subsequently, a demand relationship results from the interaction of price and quantity demanded. Thus, the price is a reflection of demand and supply. How the consumers respond to change in the price of commodities gives rise to the concept of elasticity. Depending on its reaction to price changes, demand can be elastic or inelastic. Perfectly elastic demand occurs when the quantity demanded of a product changes significantly with a small change in price. This means that at any given price, the demand is endless. Thus, if the price of a commodity is increased, consumers would stop buying that commodity completely making the quantity demanded to fall to zero.
On the other hand, a product with perfect inelastic demand, the percentage change of the quantity that the consumers demand is zero regardless of how the price is altered. Relatively large changes in quantity can occur as a result of relatively small price changes. This implies that there is a greater quantity demanded than the percentage change in price, and this is referred to as a relatively elastic demand. Its numerical value ranges between one to infinity. When there is less change in demand for commodities despite the greater change in price, relatively inelastic demand occurs. In other words, a more proportionate change in price is experienced than a proportionate change in demand.
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Lastly, unitary demand refers to the demand whose change is proportionate to a change in price. It occurs when consumers cannot readily find a close substitute product that can satisfy their needs. This concept is based on an economic theory whose assumption is that changing the price will result to an equal proportional change in the quantity that will be demanded ("4.1 Putting Demand and Supply to Work – Principles of Macroeconomics", 2019).
The demand for auto products in the United States is elastic and the price elasticity of demand for the same products is relatively elastic, whereby the proportionate change in demand will be greater than the proportionate increase in the price of the auto product (Mucka & S. T. E. F. A. N. I. E, 2016). Generally, the consumers' demand will shift to other auto parts providers. This is because America has a significant share when it comes to automotive markets globally as well as auto parts manufacturers. Overall, the country ranks second in vehicle sales and production. So while AutoEdge is considering revising the price upwards, other competitors are innovatively responding to the opportunities of today and at a lower price. However, even if the price is increased, some consumers will remain loyal to AutoEdge (Schindler, 2011).
It is the work of the financial officer to direct the company towards meeting its financial goals by identifying the strategies that the company can employ to increase revenue. Therefore, it would be wiser if Ingrid Adams as the financial officer to convince the board members to relocate the manufacturing operations to the United States but only if the company will maintain the pricing strategy that local firms are using, matching the auto products elastic demand. Otherwise, if the price will be increased, there will be no point relocating back to America because the already flagging revenue will only get worse, jeopardizing the operations.
References
Mucka, S. T. E. F. A. N. I. E. (2016). Price elasticity of demand and its effect on revenue. Place of publication not identified: GRIN Publishing.
Schindler, R. M. (2011). Pricing Strategies: A Marketing Approach .
4.1 Putting Demand and Supply to Work – Principles of Macroeconomics. (2019). Retrieved from https://open.lib.umn.edu/macroeconomics/chapter/4-1-putting-demand-and-supply-to-work/
