lake M The Commerce Ministry of a country conducts regular surveys on goods and

Question

lake M The Commerce Ministry of a country conducts regular surveys on goods and services sold within the country Researchers at the Ministry study consumer behavior the firn through the choices the consumers make while deciding what to buy Their report on the industry for beverages last year indicated that the price elasticity of demand for fruit juices in the country was -0 8, while the price elasticity of demand for a particular brand called Fruit Drops was-12 According to the report, an average consumer spends about 1 percent of his monthly income on fruit juices A student of economics, Julio, however feels that the cument price elasticity of demand for good Fruit Drops is actually higher than 12, based on his own experience in purchasing fruit juices of X More recent reports on consumer behavior in this market indicate that the price elasticity of demand for fruit juices in general is actually higher than -0 8. Which of rve for the following, i true, would support this claim? market O A. Health experts are encouraging people to consume fruits instead of fruit juices because the latter contain harmful preservatives B. More and more people are choosing to consume fruit juices instead of health drinks because of the extromaly high caffeine content in the later O C. Govemment has stopped the subsidy it used to provide to producers of fruit juices. O D. The number of fruit juice manufacturers has increased substantially in recent years wer ot. Market research suggests that as income increases, people are reducing their consumption of Fruil Drops and moving to other brands n D bove anaysis e Click to select your answer of the h ant role on A mand for good A is elastic se the percentage change in demand is greater than the percentage change in price ge in demand (1200 900)1200 or25% ge in price (7-676 or 16%

Explanation / Answer

D. The number of fruit manufacturers has increased substantially in the recent years. The demand is elastic if the elasticity is greater than 1. Since the there is a claim that elasticity is higher than -0.8, it means that there are many manufacturers in the industry and consumers can switch from one brand to another if price increases.

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