Question

13. Bacon Prices Sizzle. Consumers Feel the Heat Whether it's a bacon cheeseburger from a local diner bacon cheeseburger from a local diner or packs of bacon on grocery store shelves, you can expect to pay a higher price for your favorite cured meat... Hog supplies have been squeezed for the last couple years, as high costs of feed low demand during the recession and the HINI (swine flu) virus scare led farmers to cut back on production... Prices of pork bellies-- from which bacon is cut -- jumped to an all-time high of $1.42 a pound. Prices have soared more 100 from a year ago... A spokeswoman for supermarket chain Publix said that while the company tries "to avoid dramatic increases, especially in a time and market in which customers are extremely price sensitive," Publix has had to raise the price of a pack of bacon in its stores by about 50 cents in the past few months... Five Guys Burgers and Fries, a national restaurant chain famous for its bacon-loaded burgers, has already raised prices "a little to keep up with soaring costs. But it would rather charge more for one of its bacon burgers than skimp on bacon. "Heck yes we'll raise prices -- even if the price of bacon were to triple we'd just charge more money," said Five Guys CEO Jerry Murrell. "The worst thing we could do is cut back on the bacon, and if I do catch anyone cutting back I'm gonna skin 'em... CNNMoney, August 24, 2010 a.) Do Publix' comments imply that they believe the demand for bacon is more elastic or inelastic? Explain. 10 b.) Do Five Guys' comments imply that they believe the demand for bacon is more elastic or inelastic? Explain. D e W oning on contrado o 2011 oan it buildino no no no bodo moMalabrigi Mom de tuns bolo hand e d on vaid

Answer 1

a. The comments of Publix imply that they believe the demand for bacon is more elastic because the consumers are price sensitive and shift to another seller if the price is increased. Thus, even when prices have increased by 200 per cent, Publix has increased prices by a little amount as compared to the increase in price because they believe that demand is elastic and increase in prices will increase lead to decline in quantity demanded by a greater amount which will affect sales.

b. From the comments of Five Guys, we can infer that the demand for bacon is more inelastic because they believe in increasing prices of burger in line with the increase of the price of bacon rather than using less bacon and compromise with the quality. Thus, they believe demand to be more inelastic.