ECON6000 Module 3 Short Questions - Assignment Solution

Problem A: 

As discussed in Module 1, Schmeckt Gut plans to introduce the Schmeckt Besser energy bar on the market. 

1. In your own words, what is the importance of the topic ‘Elasticities’ for this undertaking? Explain this to the Board of Schmeckt Gut. 

The concept of elasticity is rather significant for the producers for this undertaking to know the amount of goods to be produced (Obioha & Mojisola, 2016). Having possess the knowledge of elasticities, the Board of Schmeckt Gut will be able to predict its changes in total revenue by projecting changes in prices. In addition to that, if the elasticities in income groups differ, the board will be able to charge various prices in different markets (Agarwal, 2018). The production can only be profitable if the supply is in line with the demand. Since the prices tend to change the demand, the output level can be determined with the knowledge of elasticity of demand. The prices can also be determined with a knowledge of elasticities. In case the demand is inelastic, the Board can maximize the profits by charging higher prices. In case of an elastic demand, profits can be maximized by charging lower prices. Therefore, the Board of Schmeckt Gut must know about elasticities to be able to maximize its profits. 

2. What do you suggest the Board instruct the Schmeckt Gut Research Department to do to ensure a smooth introduction of the Schmeckt Besser energy bar. Your answer should be related to the topic of Elasticities.

In order to ensure a smooth introduction of the Schmeckt Besser energy bar, the Board must first attempt to enhance the value of its brand. This can be done through effective advertising strategies. The elasticity of demand is affected to a certain degree through advertisements. When a product is advertised, the perception of the viewers about the product or the brand is shaped. This, in turn, shapes their attitudes towards the brand (Frolova, 2014). If advertising turns out to be successful, the company may be able to increase its prices by some amount to earn more profits (Kokemuller, 2019). The Board of Schmeckt Besser must invest in advertising for a smooth introduction of the energy bar because advertising determines the price elasticity of demand of the product to some extent. The Board must also focus on making the energy bar distinct from that of the other providers so that people are compelled to buy the energy bar from Schmeckt Besser. The research department of the company must try and ensure that the Schmeckt Besser energy bar becomes a habitual necessity for the consumers. For this purpose, the research department may include the ingredients in the product that are not only safe, but also make people want to have more of it. In this case, the price elasticity of demand for the product will be inelastic (Chand, 2019).