In order for managers of minor and major companies to be successful with their decisions, it is essential to be closely acquainted with an extended number of business concepts and apply them properly. For instance, it is rather beneficial for leaders to understand the concepts of income and price elasticity, and numerous real-world examples prove that specific changes in price may be risky but beneficial. The purpose of this paper is to talk about income and price elasticity and provide Netflix’s decision as an example.
To begin with, it is necessary to explain the value of the two business concepts. As noticed by Hayes, “income elasticity of demand refers to the sensitivity of the quantity demanded for a certain good to a change in real income of consumers who buy this good.” Therefore, it describes the connection between the income of a customer and their demand for a certain product. Further, price elasticity of supply refers to measuring the effect of changes in price on the demand and supply of goods (Hayes). Therefore, the leaders of companies need to be able to apply these concepts properly in order to predict how changes in prices or customers’ incomes may affect supply and demand.
There is a real-life example of a major subscription streaming service increasing its prices. According to Wingfield and Steltern, in 2011, Netflix changed its subscription prices and made customers pay about sixty percent more for each month. Since the company needed money to expand and upgrade its library content, the leaders made this choice despite the protests of the subscribers. Surely, there was a temporary loss of customers because their incomes did not increase, but the expansion of the library attracted new clients. Thus, it is possible to say that Netflix managers can apply price elasticity successfully.
Works Cited
Hayes, Adam. “Elasticity.” Investopedia, Web.
Wingfield, Nick, and Brian Stelter. “How Netflix Lost 800,000 Members, and Good Will.” The New York Times, Web.