Which one of the following economic changes is most likely to reduce customers' spending on optional products? A survey for a cinema business found that hou...
Question 1 Report
Which one of the following economic changes is most likely to reduce customers' spending on optional products? A survey for a cinema business found that household budgets had become tighter after food and energy prices rose. The cinema sells tickets, snacks and premium seats. Its manager is reviewing market research before setting the pricing objective for the next month.
(a) Which economic term describes a general rise in prices? [1]
(b) Identify one cinema item that customers may stop buying first when real income falls. [1]
(c) Explain one reason why higher inflation could reduce the cinema's sales revenue. [2]
Answer Details
(a) A general rise in prices is called inflation. [1]
(b) A premium seat is a non-essential purchase that customers may stop buying first when real income falls. Snacks, drinks or another non-essential cinema purchase are also acceptable. [1]
(c) Inflation raises the cost of essentials such as food and energy. Customers then have less disposable income, meaning money left after essential spending, so they may buy fewer cinema tickets or fewer extras. This reduces the cinema's sales revenue. [2]
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