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Questions and Answers
What does it mean if the demand for a product is described as inelastic?
What does it mean if the demand for a product is described as inelastic?
Which food item is likely to have a higher price elasticity of demand?
Which food item is likely to have a higher price elasticity of demand?
How does the price elasticity of demand for chicken compare to that of other poultry?
How does the price elasticity of demand for chicken compare to that of other poultry?
What misconception may arise regarding price elasticity of demand from a reduction in petrol prices?
What misconception may arise regarding price elasticity of demand from a reduction in petrol prices?
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What would likely indicate a more inelastic demand based on a given table of elasticities?
What would likely indicate a more inelastic demand based on a given table of elasticities?
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Study Notes
Price Elasticity of Demand
- Inelastic demand means: consumers are relatively insensitive to price changes
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Factors affecting elasticity:
- Availability of substitutes: More substitutes lead to higher elasticity
- Proportion of income: Higher proportion of income spent on a good leads to higher elasticity
- Time period: Longer time periods lead to higher elasticity, as consumers have more time to adjust
- Cadbury's Fruit 'n Nut vs chocolate: Demand for Cadbury's Fruit 'n Nut is likely to be more elastic than the demand for chocolate generally because it has more substitutes. Consumers can easily switch to a different brand of chocolate, but there are fewer substitutes for chocolate itself.
- Fruit juice vs milk: Fruit juice has higher elasticity than milk because it has a wider range of substitutes (sodas, water, etc.)
- Chicken vs other poultry: Demand for non-free-range chicken may be less elastic because it is often considered a lower-quality substitute for other forms of poultry. The demand for other poultry, such as turkey or duck, is likely to be more elastic because there are a wider range of substitutes.
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Petrol price elasticity of demand:
- Price change: 140p/litre to 133p/litre (7p decrease)
- Sales change: 10,000 litres/day to 12,000 litres/day (2,000 litre increase)
- Price elasticity of demand formula: (Change in quantity demanded / Original quantity demanded) / (Change in price / Original price)
- In this case: (2,000 / 10,000) / (7 / 140) = 0.2 / 0.05 = 4
- Price elasticity of demand: 4 (highly elastic)
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Reasons for potential invalidity:
- Short-term effect: This calculation might be heavily influenced by the Friday promotion, and the price elasticity of demand may be different during other days of the week.
- Other factors: Changes in demand could be influenced by other factors, such as weather conditions, seasonal changes, or special events, not just price changes.
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Description
This quiz explores the concept of price elasticity of demand, including factors that affect elasticity such as availability of substitutes, income proportion, and time period. Discover how different products demonstrate varying degrees of elasticity and examine real-world examples like Cadbury's Fruit 'n Nut and fruit juice versus milk. Test your understanding of consumer behavior and market dynamics.
