When the concept of the Elasticity of Demand is often discussed, the initial purchase price of a good is usually the only expense used to measure a good's change in demand relative to it's change in price.
Are there other expenses, such as maintenance/repair expenses that affect demand elasticity as well? Assuming a good is a luxury, and is sold by a firm that operates in a market that is in monopolistic competition, theoretically, if a consumer has information about maintenance and repair expenses, and has to choose between 2 goods, both have the same initial expense. However, Good A has an average maintenance expense of 10$/year, while good B has an average maintenance expense of 15$/year, wouldn't the consumer's demand for good A be more inelastic compared to their demand for good B? (Assuming this market operates in isolation, and remember in Monopolistic Competition the goods that are sold are differentiated products).
Or is the consumer's knowledge of maintenance/repair expenses generally lacking compared to their knowledge of initial expenses?
You know Stringer Bell would have appreciated fax technology. Why you tying that shit to a phone line nigga just run it all through computers fuck them long noses and their transatlantic sea cables yaherd
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1. Total Cost of Ownership (TCO): When consumers are informed about the total cost of ownership, which includes initial purchase price, maintenance, repair expenses, and other ongoing costs, they might make purchasing decisions based on this comprehensive financial picture rather than just the initial expense. For luxury goods, where the total cost of ownership can be substantial, this is particularly relevant.
2. Informed Consumers: If consumers are aware of the differences in maintenance and repair costs between two products, they are likely to factor these costs into their purchasing decision. In the scenario you provided: - Good A: $10/year maintenance - Good B: $15/year maintenance Given both goods have the same initial purchase price, consumers would prefer Good A due to lower ongoing costs, assuming all other factors are equal.
Impact on Demand Elasticity
1. Good A (Lower Maintenance Costs): - Demand for Good A would be relatively more inelastic compared to Good B because it is cheaper to maintain over time. Consumers are likely to stick with Good A even if its price rises slightly since the overall cost of ownership remains lower than Good B.
2. Good B (Higher Maintenance Costs): - Demand for Good B would be more elastic because the higher ongoing costs make it less attractive. Consumers might be more sensitive to changes in the price of Good B and switch to alternatives more readily.
Influence of Monopolistic Competition
In a monopolistically competitive market, firms sell differentiated products, and consumers perceive these products as distinct from one another. The differentiation can be based on quality, brand, features, and indeed, the total cost of ownership. If consumers are well-informed: - Perceived Value: Consumers will evaluate the overall value of a product, including initial and ongoing costs. - Brand Loyalty and Differentiation: Strong brand loyalty and perceived product differentiation can reduce price sensitivity, leading to more inelastic demand even if ongoing costs are higher.
Consumer Knowledge and Behavior
- Awareness: If consumers lack knowledge about maintenance and repair costs, they might base their decisions primarily on the initial purchase price, potentially underestimating the total cost of ownership. - Education and Information Availability: Efforts by consumer advocacy groups, product reviews, and transparency from firms about the total cost of ownership can influence consumer behavior. Well-informed consumers make decisions that reflect both initial and ongoing costs, affecting the elasticity of demand.
Conclusion
The elasticity of demand is influenced not just by the initial purchase price but also by other expenses such as maintenance and repair costs. In the case of luxury goods in a monopolistically competitive market, informed consumers will consider these ongoing expenses, leading to more inelastic demand for products with lower total costs of ownership. Hence, consumer knowledge and the availability of information about these costs play a crucial role in shaping demand elasticity. ```
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1. Total Cost of Ownership (TCO): When consumers are informed about the total cost of ownership, which includes initial purchase price, maintenance, repair expenses, and other ongoing costs, they might make purchasing decisions based on this comprehensive financial picture rather than just the initial expense. For luxury goods, where the total cost of ownership can be substantial, this is particularly relevant.
2. Informed Consumers: If consumers are aware of the differences in maintenance and repair costs between two products, they are likely to factor these costs into their purchasing decision. In the scenario you provided: - Good A: $10/year maintenance - Good B: $15/year maintenance Given both goods have the same initial purchase price, consumers would prefer Good A due to lower ongoing costs, assuming all other factors are equal.
Impact on Demand Elasticity
1. Good A (Lower Maintenance Costs): - Demand for Good A would be relatively more inelastic compared to Good B because it is cheaper to maintain over time. Consumers are likely to stick with Good A even if its price rises slightly since the overall cost of ownership remains lower than Good B.
2. Good B (Higher Maintenance Costs): - Demand for Good B would be more elastic because the higher ongoing costs make it less attractive. Consumers might be more sensitive to changes in the price of Good B and switch to alternatives more readily.
Influence of Monopolistic Competition
In a monopolistically competitive market, firms sell differentiated products, and consumers perceive these products as distinct from one another. The differentiation can be based on quality, brand, features, and indeed, the total cost of ownership. If consumers are well-informed: - Perceived Value: Consumers will evaluate the overall value of a product, including initial and ongoing costs. - Brand Loyalty and Differentiation: Strong brand loyalty and perceived product differentiation can reduce price sensitivity, leading to more inelastic demand even if ongoing costs are higher.
Consumer Knowledge and Behavior
- Awareness: If consumers lack knowledge about maintenance and repair costs, they might base their decisions primarily on the initial purchase price, potentially underestimating the total cost of ownership. - Education and Information Availability: Efforts by consumer advocacy groups, product reviews, and transparency from firms about the total cost of ownership can influence consumer behavior. Well-informed consumers make decisions that reflect both initial and ongoing costs, affecting the elasticity of demand.
Conclusion
The elasticity of demand is influenced not just by the initial purchase price but also by other expenses such as maintenance and repair costs. In the case of luxury goods in a monopolistically competitive market, informed consumers will consider these ongoing expenses, leading to more inelastic demand for products with lower total costs of ownership. Hence, consumer knowledge and the availability of information about these costs play a crucial role in shaping demand elasticity. ```
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Originally posted by Kingoftoes
Trying to multiple answers to a question that I've been thinking of for a few days.
Do you have an answer or are you just going to bitch and moan?
Thanks.
I mean yeah it’s a pretty simple question you just worded it in a way using lots of buzz words to make you seem smarter.
You’re basically asking “will consumers prefer a product that costs the same but has less ongoing future costs?!”
Obviously the answer is yes, if they are aware of the costs. So the real question is what is the product, what are the market conditions, how long has the product been available, is the consumer base knowledgeable on the product about ongoing maintenance costs, what is your brand awareness and brand loyalty, things like that. Without knowing these and other variables it’s a pointless question
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the initial purchase price of a good is usually the only expense used to measure a good's change in demand relative to it's change in price.
Source? The AI says otherwise
The statement is not true. The initial purchase price of a good is an important factor, but it is not the only expense considered when measuring a good's change in demand relative to its change in price. The concept being referred to is price elasticity of demand, which examines how sensitive the quantity demanded of a good is to a change in its price.
However, several other factors can influence demand besides the initial purchase price. These factors include consumer income, the prices of related goods (such as substitutes and complements), changes in consumer preferences and tastes, expectations about future prices and availability, seasonal effects, and the number of buyers in the market. Each of these factors can affect how demand responds to changes in price, making the initial purchase price just one of many elements that need to be considered.
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Originally posted by Morshoo
I mean yeah it’s a pretty simple question you just worded it in a way using lots of buzz words to make you seem smarter.
You’re basically asking “will consumers prefer a product that costs the same but has less ongoing future costs?!”
Obviously the answer is yes, if they are aware of the costs. So the real question is what is the product, what are the market conditions, how long has the product been available, is the consumer base knowledgeable on the product about ongoing maintenance costs, what is your brand awareness and brand loyalty, things like that. Without knowing these and other variables it’s a pointless question
Do you know/have any data that attempts to quantify to which degree consumer knowledge of "other" expenses can influence their demand elasticity?
Originally posted by the man who put it in my hood
Source? The AI says otherwise
Attempted to account for a few of these variables by specifying that this scenario takes place in a market that is in monopolistic competition and the good I mentioned is a luxury, guess I wasn't specific enough.
