Business economics JUNE 2025

Description

Business Economics

Jun 2025 Examination

 

 

Q1 Rahul operates a thriving coffee shop in a busy commercial district. He observes that a small price increase in his premium espresso leads to a sharp decline in sales, while a similar price hike for regular black coffee has minimal impact on demand. This variation in consumer response raises a crucial question: What factors influence the price elasticity of demand for different products? Analyse the key factors that determine price elasticity, including the availability of substitutes, brand loyalty, income levels, and consumer preferences and habits. Based on these insights, how can Rahul adjust his pricing strategy to enhance profitability while ensuring customer retention and satisfaction? (10 Marks)

Ans 1.

Introduction

In competitive urban markets, pricing decisions significantly influence consumer behavior and business profitability. Rahul, who runs a successful coffee shop in a bustling commercial district, has observed differing consumer responses to price changes across his product offerings. While a small increase in the price of premium espresso leads to a steep fall in demand, the same adjustment for regular black coffee has negligible effect. This scenario highlights the role of

 

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Q2. Meera is the operations manager of a fast-growing organic food company. As her company plans to expand into new markets, she needs to forecast future demand to make informed capital investment and expansion decisions. Since the company is launching a new line of organic snacks, historical sales data is limited, making traditional statistical forecasting methods less effective. To tackle this challenge, Meera explores qualitative demand forecasting techniques that rely on expert opinions, market research, and consumer insights rather than past data. Evaluate the key qualitative methods of demand forecasting that Meera can use in this situation? (10 Marks)

Ans 2.

Introduction

Accurate demand forecasting is crucial for operational planning, investment decisions, and risk mitigation, especially during expansion or new product launches. Meera, the operations manager of a growing organic food company, faces the challenge of forecasting demand for a new line of organic snacks. With limited historical data available for this product, traditional quantitative forecasting methods such as trend analysis or regression models may not deliver reliable results. In such cases,

 

 

 

Q3 (A) A local bakery sells freshly baked muffins. When the price of a muffin is Rs.10, the bakery sells 50 muffins per day. However, due to an increase in ingredient costs, the bakery raises the price to Rs.12, and as a result, daily sales drop to 40 muffins. Calculate the price elasticity of demand (PED) for the muffins. Evaluate how can the bakery use this information to decide future pricing strategies (5 Marks)

Ans 3a.

Introduction

Understanding consumer responsiveness to price changes is essential for making informed pricing decisions. The concept of Price Elasticity of Demand (PED) helps businesses assess how changes in price affect the quantity demanded. In the case of a local bakery, a price increase for muffins led

 

 

Q3 (B)Riya enjoys both chocolates and cookies equally but is willing to give up two chocolates for one extra cookie while maintaining the same level of satisfaction. Using the concept of indifference curve analysis, analyze the above scenario and discuss the indifference curve and its properties in detail.

Ans 3b.

Introduction

Consumer choice theory helps explain how individuals make consumption decisions between different goods. Riya’s willingness to exchange two chocolates for one extra cookie while maintaining the same satisfaction reflects a trade-off, which can be analyzed using indifference curve analysis.