Kayla thinks that KAUAI smoothie’s burgers are the best much better than Caffe D’vita, while Jane cannot tell the difference:
A. Kayla’s demand for all smoothie’s is more price elastic than Jane’s.
B. Jane’s demand for KAUAI smoothie’s is likely to be more price elastic than Kayla’s.
C. Jane’s demand for all smoothie’s is less price elastic than Kayla’s.
D. Kayla’s demand for KAUAI smoothie’s is likely to be more price elastic than Jane’s.
The correct answer and explanation is:
The correct answer is: D. Kayla’s demand for KAUAI smoothie’s is likely to be more price elastic than Jane’s.
Explanation:
Price elasticity of demand refers to the responsiveness of the quantity demanded of a good or service to changes in its price. If a consumer is highly sensitive to price changes, the demand for that product is considered elastic. If a consumer is less sensitive, the demand is inelastic.
In this case, Kayla considers KAUAI smoothie’s burgers to be much better than Caffe D’vita’s, which indicates that she has a strong preference for KAUAI. This preference likely makes her demand for KAUAI smoothie’s more elastic. When a person has a strong preference for a particular brand or product, their demand tends to be more responsive to price changes. If the price of KAUAI smoothie’s increases, Kayla may reduce her consumption more than Jane, who does not have a strong preference for KAUAI smoothie’s.
On the other hand, Jane cannot tell the difference between the two brands. This suggests that her preference for smoothie’s in general is more neutral or less specific. When consumers have less brand loyalty or preference, they are more likely to switch between substitutes in response to price changes. For Jane, the price elasticity of demand is likely to be lower because she is indifferent between KAUAI smoothie’s and Caffe D’vita. Therefore, her demand for KAUAI smoothie’s is less sensitive to price changes compared to Kayla’s.
In conclusion, because Kayla has a clear preference for KAUAI smoothie’s over Caffe D’vita and Jane does not, Kayla’s demand for KAUAI smoothie’s is likely to be more price elastic.