Question

1. what is the difference between buying a coffee at Drunkin Donuts and on at Starbuks?

2. why is brand loyalty so important in advertising?

3. if a product is price inelastic is there a demand curve ? explain

4. joe's store raises its price by 10% and it sales drop by 5% what is the elasticity of the toys ?

Answer 1

1) starbucks offer a whole coffee dining experience and their whole focus is on customer experience where people can sit and chat and enjoy their coffee whereas for dunkin' donuts the experience is more casual and they offer more variety of food products and have expanded their menu over the years.

2) It costs more to make new customers than to keep the old ones. And the old customers spend more than the new customers therefore maintaining brand loyalty is more important.

3) YES, the demand curve of a perfectly price inelastic demand is vertical as a change in price of the product does not change the quantity demanded .

4)If an increase in price by 10 % drops the sale by 5% then the demand is relatively inelastic as the quantity demanded falls by a less amount than an increase in price.