Answer to Question #107783 in Microeconomics for Safrin Qurishi

Question

cadbury is a british multinational company which produces not only chocolate bars but also wide range of other snack products. it is planning to increase the price of all products by 10%
i) price elasticity of demand is the most important factor for cadbury to consider when deciding whether to increase prices. Do you agree with this statement? Explain your answer.

Answer 1

Yes. Price elasticity is a crucial aspect Cadbury must take into consideration as it plans to increase the price of its products. Price elasticity is the extent to which the desire of a product changes with changes in price. When the price of goods increases, their demand reduces. A 10% increase is a huge difference. The moment the company prices are affected by an increase, the demand will will fall rapidly.