Elasticities

INDEX
1. Abstract 1
2. Introduction 1
3. Methodology 1
4. Market Analysis 2
5. Preferences of the market 4
6. Substitutes 6
7. Conclusion 7
8. Bibliography 8
9. Annexes 8

Abstract

In the industry of shoes, an increase in prices has recently occurred because of the new taxation in importations of 10 dollars per each pair shoe. Importations have decrease since then and priceshave increased with less variety and quantity. We have focus on the market of payless shoes source market in Guayaquil city.

Based on this problem we have framed how the consumers between 18 and 55 years old are responding to the price variation on Payless Shoes Source store located in front of the Malecón 2000 in the corner of Simón Bolívar and Colón Street near to the “Bahía” a kind of blackmarket.

As a conclusion for the problem we believe that this is going to be an elastic market basing on the level of competition around and the change in prices, besides of the social class that goes to the buy there and the quality of the product.

Introduction

Payless Shoes Source is a discount footwear retailer that was founded more than 50 years ago by two cousins in Topeka,Kansas who wanted to make stylish shoes available to customers who didn't want to spend a lot of money. They pioneered the concept of putting the shoes on shelves where customers could browse the styles and sizes. Their product and their self-selection store concept caught on with customers, and Payless grew quickly.
Payless has built its success by offering a large selection of shoes at very lowprices, most selling for less than $15 as of 2004. The company has been able to maintain its affordable prices by sticking exclusively to a self-service format, keeping a tight rein on cost structure, and insisting on efficient sourcing and inventory controls. Payless Shoes Source targets as its main customers women from 18 to 44 years of age with household incomes of less than $75,000, and itestimates that in any given year, 40 percent of the women in this target group buy at least one pair of footwear at a Payless store.

Methodology

The method we use to study the market for footwear was through polls to the different kind of consumers of Payless’ market. People that we polled were from different sexes, years old and social classes. With this method we could have an idea of howelastic is the Payless’ market and what their reaction is when prices increase too much. We made a poll to a reference group of 100 of consumers of Payless in front of Malecón 2000. We also use reference of articles in internet to identify the reason of the increasing in the industry of shoes, especially in the market of Payless.

Market Analysis

During the investigation we took asreference one hundred persons to make a market analysis to determinate if this is an elastic or inelastic market and to prove or deny our hypothesis.

The data obtained is based on polls with the parameters of how much they would be able to pay for a pair of shoes and the quantity of people we interviewed, because of the manager of the store did not let us to question about the exact and real priceof the products. The 26% of consumers said that the ideal price for this product is in between $30-$35, like we see in the graphic below.

|P |Demand |TR |%QD |%P |PED | |
|10 |1 |10 |0.00 |40.00 |0.00 |Perfect inelastic |
|15|1 |15 |0.00 |28.57 |0.00 |Perfect inelastic |
|20 |1 |20 |176.47 |22.22 |7.94 |Elastic |
|25 |16 |400 |47.62 |18.18 |2.62 |Elastic |
|30 |26 |780...