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31 December, 10:11

According to an article in the Wall Street Journal , McDonald's and Burger King have much larger markups on French fries and sodas than on hamburgers. Is it likely that the companies believe that the demand for French fries and sodas is more elastic or less elastic than the demand for hamburgers? Briefly explain.

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  1. 31 December, 10:40
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    more elastic

    Explanation:

    Price elasticity of demand is a concept that seeks to measure the sensitivity of demand to the price of a good or service. Thus, if demand is elastic, it means that even small variations in price have a strong impact on demand. Conversely, if demand is inelastic, variations in the price of the good will not greatly affect demand, meaning consumers will continue to demand that particular good or service.

    Thus, firms tend to have tighter prices for goods and services whose demand price elasticity is lower, that is, people have less resistance to paying a higher price for these products. On the contrary, when demand is elastic, people tend not to buy. Therefore firms tend to give incentives aimed at reducing the price elasticity of demand, as is done with french fries and sodas.
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