Elasticity of Demand

• Elasticity of demand is a measure of the responsiveness of people to change in economics variables.

There are many elastic demand and inelastic demand created by marketer. For examples, luxury goods, car and  building are elastic goods. Elastic demand means the changes of price is smaller than the changes of the quantity demanded. That is because those are not necessary goods and people are not really use in their daily life, and when the price change will give impact to the quantity demanded. Furthermore, elasticity of demand will be influenced by level of income, habit, time period and price product itself. For instance, people have lower income they will cut their hair at normal saloon for only RM5 but will not cut their hair at high-class saloon.







To explain the graph, when the price of   gold increase, people will not buy it. when the price of gold fall, people will buy more and more. 

Let us talk about the two types of substitute products: Gardenia bread and Massimo bread. These products are under necessary goods for human and necessary goods are under inelastic demand. But consumers will consider buy the lower price one, because taste of bread between the Gardenia and Massimo are almost same. Moreover, when the price of Gardenia bread increase people will tend to buy Massimo bread, whereas when the price of Massimo bread increase, people will buy the Gardenia bread instead the Massimo bread.

To best describe the situation, when the price of Gardenia bread increase, consumers will buy  Massimo bread instead Gardenia bread as the price for Massimo is lower.

Monopoly

TNB( Tenaga Nasional Berhad) Monopoly Electricity In Malaysia

          Monopoly is one of the marketing structures. TNB is one of the monopoly company in Malaysia. Characteristic of  the monopoly companies are they are price marker, they have high barrier to enter the market, selling unique products and make super-normal profit. TNB is only direct supplier electricity to every customers and they have ability to control the price.

          Why TNB is the only electricity company in Malaysia? That is because to produce electricity the company needs to invest huge amount of money and the risk of it is high. Government need to control the electricity price equilibrium, remain the price and avoid marketer to mark up the price. Furthermore, TNB company is operated by government and it is only have a license to operate in Malaysia. For example, have two electricity company in Malaysia, that  are TNB and HHB, customers will choose the cheaper one to be their customers, that will cause the price lost the equilibrium. Moreover, TNB have their own coal field and hydroelectric power plant to supplier TNB materials to produce electricity, it can lower down the production cost to keep the price low.

Based on the graph where production at the Marginal Revenue(MR) = Marginal Cost(MC) output. Company want to gain maximum profit, the price must set at the point X(Average Revenue) and it must above the Average Cost(AC).