Explain the concept of price elasticity
What will be an ideal response?
Answer: Market demand usually fluctuates as prices fluctuate. However, some goods and services are relatively insensitive to changes in price; others are highly sensitive. Buyers can also exhibit individual levels of price sensitivity. For instance, brand-loyal customers tend to be less sensitive to price, meaning they will stick with a brand even as the price increases, whereas other buyers will begin switching to cheaper alternatives. Marketers refer to this sensitivity as price elasticity–how responsive demand will be to a change in price.
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Which of the following is most likely to motivate executives to maximize shareholder wealth?
A) Tying bonuses to cost reductions and meeting budget goals B) Offering them relatively high salaries C) Tying annual bonuses to increases in annual profits D) Compensating them with stock options that can only be exercised after five years