A Newspaper Story on the Effect of Higher Milk Prices

question 71

Multiple Choice

A newspaper story on the effect of higher milk prices on the market for ice cream contained the following:
"As a result [of the increase in milk prices], retail prices for ice cream are up 4 percent from last year....And ice cream consumption is down 3 percent."
Source: John Curran, "Ice Cream, They Scream: Milk Fat Costs Drive Up Ice Cream Prices," Associated Press, July 23, 2001.
Based on the information given, what is the price elasticity of demand for ice cream?

• A)0.75 (in absolute value)
• B)1.33 (in absolute value)
• C)12%
• D)We do not have enough information to calculate the elasticity.

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Definitions:

Lifetime Profitability

The total net profit a company expects to earn over the entirety of its business relationship with a customer.

Consumer Needs

The desires, requirements, or necessities that consumers feel compelled to satisfy, driving their purchasing decisions.

Quick Energy

Fast-acting energy sources, often in the form of food or beverages, that provide immediate vitality or stamina.

Supply Chain Management

The administration of goods and services circulation, which includes the transfer and storage of raw materials, inventory in progress, and completed products from the beginning point to the end-use point.