Understanding Elasticity of Demand

The global conventional market value chain is based on fundamentals of Supply and Demand. Whether it is products and/or services, Supply Chain sources intrinsically are interlinked to Demand uses consisting of wholesale and retail customers and consumers. It is important to note that Revenues flow in the opposite direction of the Supply Chain.

Depending on the specific industry(s) or sector(s), basic commercial market scenario(s) are driven by key components:

·         Supply-Demand

·         Unmet Demand Gap

·         Elasticity of Demand

·         Existing and New Infrastructure

·         Regulatory & Policy Framework and Policy

·         Alternative Supply Sources & Competition

·         Influencing Factors (Political-Bureaucracy-Socioeconomic etc.)

·         Macroeconomics and Microeconomics

A key interrelationship which is paramount for a viable, sustainable and balanced commercial market scenario is Elasticity of Demand. As shown below, both Income and Price have a direct impact on Demand. In order to achieve effective Demand Side Management (DSM) as compared to Supply Side, a better understanding of Income and Price is essential as a prerequisite to just “build it and they will come”.

As part of any prudent strategy and planning, it is important to correlate the various components which comprise both and Income and Price Elasticity. Further, in order to carryout proper DSM evaluation, a detailed “bottom-up” economic and financial analysis must be undertaken to establish definitive “Purchasing Power” of wholesale and retail customers and consumers and their “Capacity-Ability-Willingness-To Pay”.

It should be noted that any DSM assessment is also subject to; Market Segmentation; Demographics; Monetary Policy (Inflation / Deflation / Currency Value); Fiscal / Financial / Regulatory Policy; Macroeconomics, Structured Project Finance and; Microeconomics.