Question

Explain in words why you will find prices that don't change for candy bars and why the price is the same for Nestle and Hershey candy bars.

Answer 1

Candy bars are cosidered as non- necessary goods or unessential commodiy. That means which is not a necessary goods for the existence of human life. So that the Price elasticity theory explained the demand for non essential goods like candy bars are infinite and non responsiveness to price changes. if price is much high, however the demand become infinity. The demand curve of candy bar is horzontal. Which is shown in the attached diagram .Where price is on Y axis and demand for candy on x axis D is demand curve. The demand curve show perfectly elastic means demand is infinity.Nestle and Harshey are monopolistic competitors so they produced differentiated product but close substitute product. So that firm fix their price on the basis of their competitors price strategy and more over in monopolistic competion there is no full control over the price due to high competition and large number of differentiated product exist in the market and demand is not perfectly elastic ,So that the price become almost same. Although, in the case of candy bar that is an unessential commodity so the demand for candy bar is perfectly elastic so Nestley and Harshey fix the same price.