Folgers and Maxwell House coffees tend to be much more price-elastic than Starbu
ID: 1253942 • Letter: F
Question
Folgers and Maxwell House coffees tend to be much more price-elastic than Starbucks brand coffee. As a result we can conclude that:A. when Starbucks raises prices, it causes sales of Folgers and Maxwell House to fall by a lot.
B. when the price of Folgers or Maxwell House coffee rises, consumers buy a lot less.
C. when Starbucks raises prices, it causes sales of Folgers and Maxwell House to rise a lot.
D. when the price of Folgers or Maxwell House coffee rises, consumers buy only slightly less.
Explanation / Answer
Elastic demand (or "elastic prices") means that consumers are very sensitive to increases in prices, and they will reduce the amount they buy alot if prices go up. Consumers tend to be more price-sensitive with instant coffee, like Folger's and Maxwell House, than with Starbucks coffee. Therefore, the correct answer is "B", when the price of Folger's or Maxwell house coffee rises, consumers will buy much less. Conversely, if the price of Starbuck's coffee goes up, consumers will buy less, but only a little bit less.