Price elasticity is the category that characterizes the reaction of consumer demand to changes in pricing, i.e., it defines consumer behavior when the price is altered. If a lowering of the price leads to a significant increase in demand (>1), it is considered elastic. Conversely, if a substantial modification of the price leads only to an insignificant change in purchase rates, the price/demand are inelastic.
We will write a custom Assessment on KitKat Product: Price Elasticity specifically for you
301 certified writers online
In the situation 2 of the experiment, aggregate demand for cigarettes was inelastic − only 0,4%. In the situation 3, individual demand for KitKat was very elastic − 2%. Aggregate demand was elastic as well but a little bit lower − 1,12%. It seems like individual preferences define demand to a large extent. Additionally, since the income level was the same for everyone in this case, the presence of substitute products in the market, as well as their prices, also largely motivated consumer behavior. For instance, in the situation when the price for a package of KitKat increased by 50%, the individual consumer decided to buy 3 Snickers bars, but when its price was merely €1, the consumer bought 2 pieces of KitKat and only 1 Snickers bar. When the price for preferable goods did not change, the individual’s behavior did not change as well.
The behavior of the individual purchaser is characterized by rationality − he aimed to achieve the most optimal number of benefits, i.e., the quantity of food vs. the amount of money spent. He consistently chose 2 drinks and 2 snacks of different brands depending on their current prices. At the same time, aggregate behavior was rather unpredictable and irrational. For instance, the demand for Coca-Cola varied from one situation to another although the price remained the same. It is possible to say that the changes in the overall size of the aggregate considerably complicate the identification of consumer motivations.