We can also calculate the Elasticity of Demand (PEoD) for a product or in other words how sensitive are customers to changes in product pricing. The calculation for Elasticity of Demand is: Elasticity of Demand (PEoD) = % change in quantity demanded % change in price where and % change in quantity demanded Old Demand - New Demand Old Demand % change in price = Old Price - New Price Old Price The rule of thumb in judging the Elasticity of Demand is: If PEOD > 1 then Demand is Price Elastic (Demand is sensitive to price changes) If PEOD < 1 then Demand is Price Inelastic (Demand is not sensitive to price changes) - Calculate the PEoD if I raise the price of the tote from $61 to $81. 1. How sensitive do you think consumers will be to changes in the price of this tote? 2. Do you think the market for this type of product is elastic or inelastic? 3. Would you consider this to be a prestige product? 4. What would be either a complementary or substitute product for this tote and why? - Monthly payment for sewing machine - Portion of monthly utilities (RG&E) - Portion of monthly mortgage & taxes Monthly Fixed Cost Annual Fixed Costs - 1/4 yd. fabric #1 - 1/4 yd. fabric #2 - 1/4 yd. fabric #3 Fixed Cost - 90/14 machine needles - Usual sewing supplies - 1/4 yd. fabric #4 handles and pockets - 3/4 yd. lining fabric - 1 yd. Pellon # 987F fusible fleece - 1/4 yd. Pellon # 809 Decorbond fusible - 1/8 yd. Timtex for bottom - Thread to match and/or contrast Variable cost per tote Variable Cost Unit Cost $ 125 25 225 $375 $4500 $2.50 $2.50 $2.50 $7.50 $6.00Ma $2.00 $2.00 $3.00 $1.00 $1.00 $30.00 (Calculated from variable and fixed costs) This is more representative cost for each tote that considers both my variable costs and fixed costs. This is a Marketing cost, not an Accounting cost, that I will use to base my selling price on. Total Cost Fixed Cost + Total Variable Cost (the variable cost of one unit multiplied by the expected demand or sales at a particular price point).