Final answer:
Price elasticity of demand measures how responsive quantity demanded is to price changes. A 10% decrease in price leading to an 8% increase in quantity demanded does not guarantee the same outcome will occur with another such price decrease. Variables like consumer preferences and income can influence this elasticity.
Step-by-step explanation:
When evaluating the effects of changes in price on the quantity demanded of a product, it is useful to consider the concept of price elasticity of demand. The elasticity measures how responsive the quantity demanded is to a change in price. If a 10% decrease in the price of a product leads to an 8% increase in the quantity demanded, we can say that the demand is somewhat elastic.
This does not guarantee, however, that another 10% decrease in price would cause the exact same percentage increase in quantity demanded. Various factors, such as the amount and availability of substitutes, consumer preferences, and income levels, can affect the demand elasticity of a product. So, while past behavior can offer insight, it cannot ensure future outcomes will be identical as numerous variables might affect consumers' responsiveness to price changes differently over time.
Effects on Cheese Market
- If the price of milk rises (a key input in cheese production), cheese supply will decrease by 80 pounds at every price point, leading to an upward shift in the supply curve for cheese.
- Concurrently, if a study proclaims cheese to be beneficial for health and increases its demand by 20% at every price, the demand curve for cheese would shift outward.
The interaction of these supply and demand changes will alter the market equilibrium price and quantity for cheese, which may or may not result in quantity changes that are directly proportional to the prior changes in price.