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Posted on Apr 20, 2024

1. Chewing gum companies raise the price from $.30 to $.80 per pack. What will happen to the demand for chewing gum? a. A

1. Chewing gum companies raise the price from $.30 to $.80 per pack. What will happen to the demand for chewing gum? a. A D or A QD? b. Economic Reason (from list above): c. Graph the change. Label all parts.

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Based on the image the price of chewing gum has increased from 30 to80perpackThisisapriceincreaseof50cents80 30 In economics when the price of a good increases the quantity demanded typically decreases all other factors being equal This is because as the price goes up consumers are able to buy less of the good with the same amount of money This relationship between price and quantity demanded is known as the law of demand There are several factors that can affect the demand for a good besides price These include Consumer income If consumers have more money they will generally demand more of a good even if the price goes up Tastes and preferences If consumers develop a taste for a particular good they will demand more of it even if the price goes up The availability of substitutes If there are close substitutes for a good consumers will be more likely to switch to a substitute if the price of the original good goes up In the case of chewing gum there are a number of substitutes available such as mints candy and lollipops So if the price of chewing gum goes up some consumers may switch to one of these substitutes This would decrease the demand for chewing gum The effect of a price increase on the quantity demanded can be illustrated by a demand curve A demand curve is a graph that shows the relationship between the price of a good and the quantity demanded The curve is typically downwardsloping reflecting the law of demand In the image the original demand curve is represented by the blue line D1 The new higher price is represented by P2 The quantity demanded at the new price is represented by Q2 As you can see the quantity demanded has decreased from Q1 to Q2 The size of the decrease in quantity demanded will depend on the price elasticity of demand for chewing gum The price elasticity of demand is a measure of how responsive the quantity demanded is to a change in price If the price elasticity of demand is high then a small change in price will lead to a large change in quantity demanded Conversely if the price elasticity of demand is low then a large change in price will lead to a small change in quantity demanded There are a number of factors that can affect the price elasticity of demand for a good These include The availability of substitutes As we discussed above if there are a close substitutes available then the demand for a good will be more elastic This is because consumers will be more likely to switch to a substitute if the price of the original good goes up The necessity of the good If a good is considered to be a necessity then the demand for it will be less elastic This is because consumers will be less willing to cut back on their consumption of a necessity even if the price goes up The proportion of income spent on the good If consumers spend a large proportion of their income on a good then the demand for it will be more elastic This is because consumers will be more likely to cut back on their consumption of the good if the price goes up In the case of chewing gum it is likely that the demand is relatively elastic This is because there are a number of close substitutes available and chewing gum is not a necessity So if the price of chewing gum goes up consumers are likely to switch to one of these substitutes This would decrease the demand for chewing gum In conclusion the price increase is likely to decrease the demand for chewing gum The size of the decrease will depend on the price elasticity of demand for chewing gum The answer is that a price increase of chewing gum will likely decrease ... blur-text-image