How can you use elasticity to determine price of a new product?

Answer 1

Its difficult to price a new product using the principles of elasticity. You may want to try out various prices in different market segments and generate the demand/supply curve to figure out the optimal.

Answer 2

I don't think you can use elasticity to determine the price of a new product. Elasticity determines how the demand for a product changes as a price changes.

Answer 3

I disagree with the PHD and think several above answers are better suited. Elasticity measures the responsiveness in relation to a change in price. So, if you've never had a price, once you establish what your costs are to one widget or a thousand widgets....your price needs to cover Fixed and Variable costs. Once you put the widget on the market, if it sells like hotcakes...your inelastic (your profits are directly related to the Q supplied) As you raise price you may see your profits rise, BUT, a decrease in Q Supplied, Call it Market Elastic or equilibrium. If you raise your rates to a point of Elasticity, your profits drop off and so did you Q supplied. Watching the change in price to the qauntity supplied is "ELASTICITY"

Answer 4

First, all of those prior answers are wrong.

You need to use the formula for price elasticity of demand and go backwards to find the new price. To do this, you need four pieces of information. You need: The value for elasticity, the old price, the old quantity, and the new quantity.

Then, you can use the formula:

E= ((Q2-Q1)/(Q2+Q1))/((P2-P1)/(P2+P1))

Where Q1/P1 refers to the old quantity and price, and Q2/P2 refers to the new quantity and price.

Then just plug in the numbers for everything you have, which should be all of the values except P2. The you can solve for P2.

I hope this helps!

Answer 5

Supply and demand. If your customers buying a lot of stuff you getting more of it and by lowering your price you will have even more customers. by doing so you elasting your economic health. and that's exactly how you determine.