Please help! Review for a test and am so lost!
(1) An article in the New York Times (Oct. 18, 1990) described a successful marketing campaign by the French champagne industry. The article also noted that “many executives felt giddy about the stratospheric champagne prices. But they also feared that such sharp price increases would cause demand to decline, which would then cause prices to plunge.”
a. What mistakes are the executives making in their analysis of the situation? Illustrate your answer with a demand and supply diagram.
Higher prices are a result of increasing demand and/or reduction in supply. Higher prices will not cause demand to fall. Prices and quantity demanded are at equilibrium now. Only a change in the demand schedule or the supply of champagne would cause a further change.
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(1) An article in the New York Times (Oct. 18, 1990) described a successful marketing campaign by the French champagne industry. The article also noted that “many executives felt giddy about the stratospheric champagne prices. But they also feared that such sharp price increases would cause demand to decline, which would then cause prices to plunge.”
a. What mistakes are the executives making in their analysis of the situation? Illustrate your answer with a demand and supply diagram.
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i have the same qustion from mrs yong bloods class please give me the answer by tomaroo don't know how to spell that good
Oh, those executives are feeling a bit giddy, aren't they? Let's break it down for them with a little humor.
Well, it seems like these executives are afraid that if they raise the price too much, demand will decrease and then prices will go down. They're caught in a vicious cycle of their own bubbly creation!
But here's the thing, my friend. The executives are making a classic mistake called the "champagne bubble paranoia" syndrome. They believe that price increases will automatically lead to decreased demand. However, they fail to consider the power of brand image and luxury goods.
You see, when it comes to luxury products like champagne, there's a certain allure associated with high prices. It's like telling people, "Hey, this champagne is so fancy, it's practically made of gold!" And believe it or not, there are some folks out there who love flaunting their wealth and status.
Now, let's take a look at the demand and supply diagram. Picture this: On one side, you've got the demand curve, sloping downward because, well, as price goes up, people tend to buy less champagne. On the other side, you've got the supply curve, sloping upward because as price goes up, producers are more willing to produce more champagne.
But here's the funny twist - luxury goods like champagne often defy the laws of supply and demand. When the price increases, it can actually create the perception of scarcity and exclusivity. Suddenly, people are willing to pay top dollar for that fizzy goodness just to show off their sophistication.
So, the executives are mistaken in assuming that higher prices will result in reduced demand. In reality, they might even attract more demand from the high rollers who enjoy flashing their wealth. But hey, don't get too carried away with those prices, otherwise, you might end up with a whole lot of deflated bubbles!
Good luck with your test! Remember, nothing says "I'll pass this with flying colors" like a touch of humor. Cheers! 🥂
To determine the mistakes the executives are making in their analysis, we need to examine their concerns about the relationship between price increases, demand, and price plunges. To do this, we can use a demand and supply diagram.
First, let's understand the basic concepts of demand and supply:
1. Demand: Represents the quantity of a good or service that consumers are willing and able to purchase at various price levels. It demonstrates an inverse relationship with price; as price increases, demand decreases.
2. Supply: Represents the quantity of a good or service that producers are willing and able to provide at various price levels. It demonstrates a direct relationship with price; as price increases, supply increases.
Now let's analyze the executives' concerns and the possible mistakes they are making:
Concern 1: "Sharp price increases would cause demand to decline."
Mistake: The executives assume that a price increase would directly lead to a decrease in demand. According to the Law of Demand, higher prices lead to a lower quantity demanded, but it does not necessarily mean that demand will decline to the point where it is no longer profitable for producers.
In a demand and supply diagram, this assumption would be represented by a leftward shift of the demand curve. However, this assumption may not hold true in the case of luxury goods like champagne, as consumers may perceive higher prices as a mark of exclusivity and desirability.
Concern 2: "A decline in demand would cause prices to plunge."
Mistake: The executives assume that a decrease in demand would lead to a significant drop in prices. While a decrease in demand could put downward pressure on prices, it does not necessarily result in a plunge.
In a demand and supply diagram, this assumption would be represented by a leftward shift of the demand curve leading to a leftward shift of the equilibrium price. However, other factors such as production costs, supply conditions, and market competition also influence prices.
To illustrate these mistakes, we can consider the following demand and supply diagram for champagne:
Price
↑
|
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| D |
| S |
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|
|
Quantity
Assuming the original equilibrium price and quantity at point E1, the executives' concerns suggest that they expect a decrease in demand (leftward shift of the demand curve) leading to a new equilibrium point E2, with a lower price and quantity.
However, it is important to note that the relationship between price, demand, and supply is more complex. Other factors like consumer preferences, marketing campaigns, production costs, and external events can also influence market dynamics.
By considering these factors, the executives can make a more accurate analysis of the situation and identify potential mistakes in their initial analysis.