Elasticity of Demand

Topics: Consumer theory, Supply and demand, Price elasticity of demand Pages: 3 (1064 words) Published: June 2, 2007
In this paper, we examine Happy Pet Clinic, a local veterinary clinic, and how the principles of elasticity of demand might frame its pricing decisions and planning. As a small practice, every change the managers make can have a significant impact on the clinic's income. Price Elasticity of Demand, Cross Price Elasticity of Demand, and Income Elasticity of Demand concepts can be used to analyze and estimate how prices changes may affect the clinic's bottom line

Professional Vet Brand pet food is the exclusive brand of pet food carried at the Happy Pet Clinic. This pet food is considered a ‘premium' brand and competes with other high-end pet foods but is available only at veterinary offices. The recent recall in over 100 brands of pet food brought many clients into the clinic to find "safe" brands. Due to high quality ingredients exclusively from North America, the clinic felt comfortable in recommending the food to clients who had fed one of the more than 100 brands of recalled foods and were looking for a safer brand of food to change their dogs and cats to. At the same time, the cost of Professional Vet Brand to Happy Pet Clinic has increased, due to rising gas prices causing increased transportation costs. Price Elasticity of Demand expresses the relationship between the price of a product and the demand for that product. What will happened to the demand for Professional Vet Brand sales if the clinic raises the price of the it? Though some current clients may not buy the pet food at the new price, other clients will continue or even join in purchasing it, as it is one of the few pet foods not affected by the pet food recall. To calculate the Price elasticity of demand of Professional Vet Brand it was estimated that sales would drop from 98 bags sold per month to 90 bags sold per month:

Original Price = $15 bag (P1)
New Price = $17 bag (P2)
Quantity Demanded at the Old Price = 98 (Q1)
Quantity Demanded at the New Price = 90 (Q2)
Price elasticity of...
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