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Significance of Price Elasticity of Demand (PED) Values for Cereals, Eskom's Inefficiency as a Monopoly in the Energy Sector and The efforts of the competition council in Morocco to promote increased competition across various sectors.$22.95
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Significance of Price Elasticity of Demand (PED) Values for Cereals, Eskom's Inefficiency as a Monopoly in the Energy Sector and The efforts of the competition council in Morocco to promote increased competition across various sectors.
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Course
MBAP_ME102-AD
Institution
MBAP_ME102-AD
Explain the significance of price elasticity of demand (PED) values with reference to cereals, which have a PED of 0.7, and Kellog’s Cornflakes – a specific type of cereal, which have a PED of 2.6. Investigate the reasons behind the difference in these PED figures and discuss the implications f...
QUESTION ONE
1.1
Significance of Price Elasticity of Demand (PED) Values for Cereals
Price elasticity of demand (PED) measures the responsiveness of quantity demanded to a change in price. A
PED value of 0.7 for cereals indicates that cereals are inelastic, meaning that a change in price will result in a
proportionally smaller change in quantity demanded. On the other hand, Kellogg’s Cornflakes, with a PED of
2.6, are elastic, signifying that a change in price will lead to a proportionally larger change in quantity
demanded.
Reasons for the Difference in PED Figures
The difference in PED values can be attributed to several factors. Firstly, the availability of substitutes:
cereals, being a broad category, may have fewer close substitutes compared to a specific brand like Kellogg’s
Cornflakes, making the latter more price-sensitive. Additionally, brand loyalty and perceived differences in
quality can influence the elasticity of demand. Kellogg’s Cornflakes, being a well-known brand, may have a
more elastic demand due to consumers’ willingness to switch to alternatives if the price changes.
Implications for Producers, Consumers, and the Cereal Market
For producers, a low PED for cereals implies that a price increase may lead to a smaller decrease in quantity
demanded, potentially resulting in higher total revenue. Conversely, the high PED for Kellogg’s Cornflakes
suggests that a price increase could lead to a significant drop in quantity demanded, impacting revenue
negatively. Producers of Kellogg’s Cornflakes may need to carefully consider price changes to avoid losing
market share.
Consumers of cereals may find it harder to adjust their consumption in response to price changes due to the
inelastic nature of demand. On the other hand, consumers of Kellogg’s Cornflakes are more likely to alter
their purchasing behavior in response to price fluctuations, potentially benefiting from lower prices.
In the overall cereal market, the difference in PED values implies that producers of generic cereals may have
more pricing power compared to producers of specific brands like Kellogg’s Cornflakes. Additionally, it
highlights the importance of understanding consumer behavior and market dynamics to make informed
pricing and production decisions.
, 1.2
Fluctuations in exchange rates can significantly impact the cost and availability of internationally branded
cereals in South Africa, with implications for consumers, businesses, and the import market.
Cost of Internationally Branded Cereals
Fluctuations in exchange rates directly affect the cost of importing internationally branded cereals. When the
South African rand weakens against the currency of the exporting country, the cost of these cereals in rand
terms increases. This can lead to higher retail prices for consumers, as businesses may pass on the
increased import costs to maintain their profit margins.
Availability of Internationally Branded Cereals
Exchange rate fluctuations can also impact the availability of internationally branded cereals. A weaker rand
makes it more expensive for South African businesses to import these products, potentially leading to
reduced quantities being imported. This can result in limited availability of certain internationally branded
cereals in the South African market.
Implications for Consumers
For consumers, exchange rate fluctuations can lead to higher prices and limited choices. As the cost of
internationally branded cereals increases, consumers may opt for cheaper alternatives or reduce their overall
consumption of these products.
Implications for Businesses
Businesses importing internationally branded cereals face challenges in maintaining competitive pricing and
profit margins. Fluctuating exchange rates can disrupt their cost calculations and pricing strategies,
impacting their bottom line.
Implications for the Import Market
The overall import market for internationally branded cereals is influenced by exchange rate fluctuations.
Volatility in exchange rates can create uncertainty for importers, affecting their purchasing decisions and
inventory management. It can also impact the competitiveness of domestic cereal producers relative to
imported brands.
In conclusion, fluctuations in exchange rates have far-reaching implications for the cost, availability, and
market dynamics of internationally branded cereals in South Africa. Consumers may face higher prices and
limited choices, while businesses navigate challenges in pricing and import decisions. The import market as
a whole is subject to uncertainty and competitive pressures due to exchange rate fluctuations.
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