Seventy-two percent of the members of the United Food and Commercial Workers Loc
ID: 1104761 • Letter: S
Question
Seventy-two percent of the members of the United Food and Commercial Workers Local 655 voted to strike against Stop ’n Shop in the St. Louis area. In fear of similar union responses, two of Stop ’n Shop’s larger rivals in the St. Louis market—Dierberg’s and Schnuck’s—decided to lock out its union employees. The actions of these supermarkets, not surprisingly, caused Local 655 union members to picket and boycott each of the supermarkets’ locations. While the manager of Mid Towne IGA—one of many smaller competing grocers—viewed the strike as unfortunate for both sides, he was quick to point out that the strike provided an opportunity for his store to increase market share. To take advantage of the strike, the manager of Mid Towne IGA increased newspaper advertising by pointing out that Mid Towne employed Local 655 union members and that it operated under a different contract than “other” grocers in the area.
What is the expected impact of advertising on Mid Towne IGA (how will the equilibrium price and quantity change)?
Equilibrium price: (Click to select) will not change. will decrease. will increase.
Equilibrium quantity: (Click to select) will not change. will increase. will decrease.
Identify the type of advertising in which Mid Towne IGA engaged.
(Click to select) Informative Persuasive Expensive advertising
Do you believe the impact of advertising will be permanent?
Yes - the strikes will likely have a permanent effect on Mid Towne IGA's demand.
No - as contracts are renogetiated, demand will shift back to its original level.
Explanation / Answer
Equilibrium price:
Will increase
Equilibrium quantity:
Will increase
With informative advertising it helps to gain the sympathy of the consumers which increases quantity demanded and its price.
Type of advertising
Informative, as it is trying to educate consumers that its contract with Local 655 union members was different than its rivals.
Impact of advertising will be permanent
No - as contracts are renegotiated, demand will shift back to its original level
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