Answer to Question #164739 in Economics of Enterprise for jeremy pabia

Question

You were promoted as the manager of a new Clean-Well Sanitary Store that sells cleaning and sanitation products wholesale. You recently read in an article that there the price of vitamins is expected to increase by 20 percent. How will this affect your store’s sales of sanitation products?

 

Items

Selected Cross price elasticity

Food supplements

0.34

Medicines

0.56

Foods

0.09

 

 NO NEED TO GRAPH, JUST SHOW COMPUTATIONS

Answer 1

Here we can assume the cross elasticity of demand where the proportionate change in price of one creates change in demand of another. When the price of vitamins increase the demand for sanitation will increase as improved vitamins supplements creates good health so when price increases the demand for vitamins will decrease and there by the demand of sanitation product will increase to improve health conditions as good sanitation prevents from diseases. This sales manager will promote more sanitation products and improve sales as sanitation products will create better health.