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Elasticity of Demand

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on 7 September 2013

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Transcript of Elasticity of Demand

first of all, What does elasticity of demand mean?
The demand for an item is sensitive to the change in the price of the item, in regards to quantity.
If a large change in price is accompanied by a small amount of change in quantity demanded, the product is inelastic.
For example:

If a small change in price is accompanied by a large change in quantity demanded, the product is said to be elastic.
So..
Typically, businesses charge higher prices for products that are valued as inelastic.
*the availability of substitutes

*the amount of income available

*time
Elasticity is influenced by..
more substitutes = more elasticity
Elasticity of Demand:
The Nike Company

How does this come into play with Nike products?
simple. Nike products are mainly sold through companies within their franchise.
so..
As the consumer, you may have to go to the Nike company or a partnered company that carries the brand.
How does this work in Nike's favor?
Assuming you can only buy their brand through specific stores, the prices will remain high or be increased regardless of demand.
The demand for Nike products is price inelastic because the increase in price have little to minor changes on the quantity demanded.
The argument for investing in Nike shoes
The shoe game is rapidly expanding with the passing of each generation
Nike shoes have also be valued at little or more of half of the original price in annualized return

For example
In 2011 I purchased a pair of Air Jordan Retro XI “Concords” for $192.59.
A year later those shoes sold on eBay for $300, accruing maybe another $100 in value.

that’s a 55% annualized return.
Nike keeps stock artificially low to hype up shoe release.
Shoes remaining or maintained in good condition = increase in value
As the hype increases, so does demand; making the value of the product go up as well.

http://topics.nytimes.com/top/news/business/companies/nike_inc/index.html
spending $ on shoes has never made more sense
Full transcript