Economic Globalisation

Economics essay

Student name: Lin Sheng
Tutor name: Lorna
Course Code: ET10005
Date: 2010, May 15th  

With the emergence of globalization, free market and technology advances, business firms are increasingly exposed to competition from other rivals both domestically and internationally. Consequently, a thorough understanding and analysis pertinent to the mechanism of the competitive enterprise economy is of great importance to both large corporations as well as small firms. Among various economic theories and principles, demand which refers to how much (quantity) of a product or service is desired by buyers, is one of the most fundamental concepts and the backbone of a market economy. A comprehensive demand analysis capacitates the decision makers of the company to understand consumer behavior within the marketplace and how the market variables determine the intensity of desire and quantity demanded for a specific product or service. With the aid of demand analysis, companies can adjust themselves to the changeable market condition and consumers’ preference as soon as possible to satisfy consumers’ appetite to the largest extent, and therefore improve company’s performance and maximize the profit. This essay is going to evaluate the three commonly used tools including price elasticity, price discrimination and advertising in terms of demand analysis for manufacturing companies.  

‘The law of demand states: other things remaining the same, the higher the price of a good, the smaller is the quantity demanded’ (Parkin et al, 1997:71). However, it is obviously not enough when it comes to decision making about pricing and production and more importantly, managers should be informed of how the consumers will respond to the changes in prices which can be reflected and analyzed by examining the price elasticity of demand. Mathematically, the elasticity of quantity demanded with respect to price changes can be computed by taking the percent change in the...