Economics Demand, Supply, and Market Equilibrium
The elasticity of demand indicates that as the income of a consumer increases, the consumption of the product is limited. Therefore, it means that customers with lower income consume or buy more of the product, and vice versa.
Analysis of the price elasticity of supply helps the company to preserve the stock. Most of the firms primarily dealing with perishable goods employ this model for such purpose (Wang & Li, 2012). Johnson & Johnson Company is as well attentive to elasticity, conducting a thorough analysis of price elasticity for each of its products. Baby Soap with Aloe Vera as a child care product has an inelastic to price demand (Gong & Breunig, 2012). The product supply is, on the contrary, elastic to price, given that the amount of commodity produced may be increased or decreased according to market conditions without need for additional production capacity.
It is evident that some of the non-price factors that influence the demand for the Baby Soap at the market include branding and demographics. The majority of buyers are easily persuaded by the information they are provided with. Consequently, the sellers of a new product should engage their customers through building a strong customer-service relation, advertising, enhancing product quality, as well as product differentiation. Such strategies will create a strong brand image for buyers to have the strongest preference for the new product in the market. At the same time, any change in the population’s age structure can affect the demand for a product. The Baby Soap best suits for a population with a large number of young children of age 0-5 years. However, if most buyers are adults, the demand for the product declines.
Certain factors can prevent distributors from introducing Baby Soap with Aloe Vera to the market, and they include the price of the related product and the government policies and regulations. The resources or materials used in the production are similar to those of the primary product from these commodities. Frenkel and Johnson (2013) also affirm that the government may set certain rules or laws that relate to the exchange rates or taxes, which may affect the supply of the product. On the other hand, technological advancement, which may reduce the cost of the Baby Soap, can increase the availability of the product to the market.
The Baby Soap with Aloe Vera is a commodity of the child care industry; in particular, it belongs to the market of detergents. When the demand for the product equals the quantity supplied in this market, then the company reaches its equilibrium. However, when the market price of the product is different from the equilibrium price, it must be adjusted to reach the point of equal demand and supply.
When the supply of Baby Soap with Aloe Vera shifts to the right (an increase in the amount of product introduced to the market), the price is reduced. Consequently, a decrease in the supply of the product reduces, ceteris paribus, the quantity of the product sold. Abt, Abt, & Galik (2012) affirm the enormous effect of the changes in the supply and demand of bioenergy on other markets.
To dominate the market, it would be advisable to increase the provision of the Baby Soap with Aloe Vera. An increase in the production influences the amount of the commodity supplied. Furthermore, considering that the demand for the soap is inelastic, the market price may be increased to maximize profits.
Abt, K. L., Abt, R. C., & Galik, C. (2012). Effect of bioenergy demands and supply response on markets, carbon, and land use. Forest Science, 58(5), pp. 523-539.
Frenkel, J. A., & Johnson, H. G. (2013). The economics of exchange rates (Collected works of Harry Johnson): Selected studies. Vol. 8. Routledge.
Gong, X., & Breunig, R. (2012). Estimating net child care price elasticities of partnered women with pre-school children using a discrete structural labour supply-child care model. Australian Government. Department of the Treasury.
Wang, X., & Li, D. (2012). A dynamic product quality evaluation based pricing model for perishable food supply chains. Omega, 40(6), pp. 906-917.