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The Price Elasticity of Demand of Bordeaux Wine

  • Date Submitted: 02/21/2013 03:41 AM
  • Flesch-Kincaid Score: 61 
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The purpose of Price Elasticity of Demand is to measure the responsiveness of demanded quantities of a product to a change in that product’s price. This is a widely used economic tool and can help organisations to plan their pricing strategies accurately. In order to properly calculate the Price Elasticity of Demand, the percentage of change in demand for a product is divided by the percentage change in price of that product. The result of the formula is interpreted to find the Price Elasticity of Demand. If the number is greater than one, then the product is deemed to be price elastic, and similarly, if the number is less than one, then the product is deemed to be inelastic.
Although the figure found from the Price Elasticity of Demand formula usually shows if a product is price elastic or inelastic, there are non-price determinants that may affect the demand for a product. One of these is the amount of substitute products available. This determinant is based on the theory that if the price of a substitute product changes, then it may affect the demand for the product in question. Another determinant is the change of income of the firm’s customer base. This takes into account the effect a change of disposable income can have on the demand for a product.
The Price Elasticity of Demand for a product can also be used to determine the total revenue gained from the product. For example, if a product is shown to be price elastic, then a demand curve may be used to find the price that causes the highest demand for the product, and in turn, the highest total revenue.  
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In the case of the issues surrounding the sale and demand for Bordeaux Wine, wine merchants said that they would only buy the 2008 wine if it was sold at the 2002 price of £95 a bottle, as opposed to £318 in 2007 (Sage and Pavia, 2009). This pricing strategy supports the notion that the demand for Bordeaux Wine is price elastic. The Price Elasticity of Demand for Bordeaux wine is high...

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