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Assess the likely impact of media health campaigns on the price elasticity of demand for health and fitness clubs - Edexcel - A-Level Business - Question 1 - 2017 - Paper 3
Question 1
Assess the likely impact of media health campaigns on the price elasticity of demand for health and fitness clubs. The average price elasticity of demand for clubs ... show full transcript
Worked Solution & Example Answer:Assess the likely impact of media health campaigns on the price elasticity of demand for health and fitness clubs - Edexcel - A-Level Business - Question 1 - 2017 - Paper 3
Step 1
Price elasticity of demand (PED) measures sensitivity
Answer
Price elasticity of demand (PED) measures how sensitive consumer demand is to price changes and is calculated using the formula:
\text{PED} = \frac{% \text{ change in quantity demanded}}{% \text{ change in price}}
For instance, with a PED of -2, a 5% increase in membership fees might reduce new memberships by 10%. This indicates that health clubs' memberships are elastic, meaning that small changes in price lead to significant changes in demand.
Step 2
Impact of media campaigns
Answer
Media health campaigns are likely to decrease price elasticity. By promoting health benefits and the importance of fitness, these campaigns emphasize maintaining a healthy lifestyle, which may encourage consumers to prioritize fitness club memberships over cost.
As potential new members become more health-conscious, they may value fitness more than the monetary cost, making them less sensitive to price changes.
Step 3
Counterbalancing factors
Answer
The impact of media campaigns can be influenced by external factors, such as seasonal trends. For example, in January, gym memberships may surge due to New Year's resolutions, which might skew demand.
If demand spikes due to health campaigns during this time, consumers may still find price increases acceptable, thereby changing their elasticity calculations.
Step 4
Judgment on effectiveness
Answer
The effectiveness of health campaigns on PED will likely depend on economic conditions. In times of economic hardship, even campaigns may not prevent people from reconsidering their gym memberships. Some may opt to cancel due to financial constraints rather than prioritize health, especially if they do not view fitness as part of their lifestyle.