A bakery records that customers buy more wholegrain bread after it reduces its price from $3.00 to $2.50. The owner uses the result when deciding how much f...
Question 1 Report
A bakery records that customers buy more wholegrain bread after it reduces its price from $3.00 to $2.50. The owner uses the result when deciding how much flour, labour and oven time to allocate next week.
(a) Show how the fall in price provides a signal to the bakery about consumer preferences. [2]
Answer Details
The price fall from \(\$3.00\) to \(\$2.50\) is followed by higher quantity demanded, or greater sales, of wholegrain bread. [1] This increase in sales signals that consumers want more wholegrain bread at the lower price, so the bakery should allocate more flour, labour and oven time to its production. [1]
Prices and sales provide information to producers about consumer preferences and help guide resource allocation.
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