The Commerce Ministry of a country conducts regular surveys on goods and service
ID: 1159029 • Letter: T
Question
The Commerce Ministry of a country conducts regular surveys on goods and services sold within the country. Researchers at the Ministry study consumer behavior 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? -1.2. 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 current price elasticity of demand for Fruit Drops is actually higher than? -1.2, based on his own experience in purchasing fruit juices.??
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 the? following, if? true, would support this? claim?
A.
The number of fruit juice manufacturers has increased substantially in recent years.
B.
More and more people are choosing to consume fruit juices instead of health drinks because of the extremely high caffeine content in the latter.
C.
Government has stopped the subsidy it used to provide to producers of fruit juices.
D.
Market research suggests that as income? increases, people are reducing their consumption of Fruit Drops and moving to other brands.
E.
Health experts are encouraging people to consume fruits instead of fruit juices because the latter contain harmful preservatives.
Explanation / Answer
Solution: Health experts are encouraging people to consume fruits instead of fruit juices because the latter contain harmful preservatives.
Explanation: Last year price elasticity of demand for fruit juices in the country were -0.8; and price elasticity of demand for a particular brand called Fruit Drops -1.2. An average consumer spends nearly 1% of the monthly income on fruit juices. In the current year it is higher for both the goods thus indicating that health experts are encouraging people for the consumption of more fruits as the latter contain harmful preservatives
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