When the Price of a Gallon of Milk Increases by $0.50

question 52

Multiple Choice

When the price of a gallon of milk increases by $0.50, consumers notice this increase immediately. This is an example of what concept in the understanding of consumer price sensitivity.

• A) Customers often miss the just noticeable difference.
• B) Customers are less sensitive to disposable products.
• C) Customers are most sensitive to products that are bought frequently.
• D) Customers are most sensitive to food products.
• E) Customers are most sensitive to grocery products.

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Definitions:

Fixed Costs

Costs that do not vary with the volume of production or sales, such as rent, salaries, and insurance premiums.

Variable Costs

Expenses that change in proportion to the amount of goods produced or the volume of sales, including labor and materials.

Operating Leverage

Operating leverage is a measure of how revenue growth translates into growth in operating income, highlighting the scalability of a company’s business model.

Variable Costs

Expenses that vary in relation to the amount of output or business operations.