Price elasticity, demand and revenue Before starting to talk about price elasticity, demand. Venue and the relations between them, it is necessary to explain the definition of each of them. According to Boston (2014: presentation) price can be inelastic or elastic, so inelastic means that a 1 % change in the price of a good or service has less than 1 % change on the quantity of supply or demand. Logically, the elastic price means that price change of 1 % causes more than 1 % change In the quantity demanded or supplied.
Basically, most of goods and services In the world are elastic as far as they are not unique and can be replaced by similar product with best price for the customer. To calculate the price elasticity of demand the next formula is using: percentage change in the quantity demanded divided by percentage change in the price. The demand from economic point of view is not a need or want of customers to buy a product or service, but they willingness and ability to do so, taking Into account the price of the good.
If the consumers do not have enough money to purchase the product of service, no matter how much they need It – they will not buy It. This Is the core connection between price, its elasticity and demand (Hughes, 1986). The revenue of the company is all amount of money that organization has earned during the year (month, decade), which is calculated by multiplying the price per one unit to the number of goods were sold (www. Nephews. Com). As It can be noticed, the revenue has a direct link with price and demand, because the revenue depends from these two statements (sold units. Increasing or decreasing price, demand, etc. ). For example, Hilton has stable prices for the hotels (they are not increasing) and their revenue increased on 4. 4 % from 2012 to 2013 (see Graph 1) (www. Balance. Yahoo. Com). The reason can be in price elastic, simply because there a lot international hotel chains targeting the same customers with better price, so Hilton can not Increase the price per room. Graph 1 Hilton Worldwide Revenue There are two main types of economic: macro- and microeconomic.
Microeconomic studies individuals and businesses, their performance on the market and the influence of the government. However, the macroeconomic is about economic performance on market from national and global perspectives (www. Miff. Org). The number of macroeconomic theories has been increasing through the history of equines existing, but there are two main questions in any of this theories: what, how and for whom the goods are produced and identifying the clinometers and social interest.
So today we have such theories like classical economics, the developer of which was Adam Smith with a main idea of flexible prices ensure market equilibrium; Keynesian economics with an answer to the mass unemployment situation of the Great Depression of sass; another well-known theories are called IS-ELM Analysis, aggregate Analysis, monetarism and new classical economic. According to new lassie economic theory the quantity demand influence on the price changing, generally speaking, higher the price, the lower the quantity demanded.
The company corporate team has to set the prices that provide the best revenue, taking into account the produced units of goods (wry. Amasses. Com). Double Tree by Hilton also uses this economic theory for price and produced amount decision. The company forecasts to open optimum amount of 40 new properties worldwide, not more in order to avoid the extra supplying, and not less, according to the company’s market research for the future demand and tourists streams in the chosen destinations.