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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
Impact of Media Health Campaigns
Answer
Media health campaigns are designed to encourage healthier lifestyles, which can affect the price elasticity of demand (PED) for health and fitness clubs. When health campaigns promote the benefits of exercise and healthy living, potential customers are likely to be more aware of the advantages of joining a gym. This increased awareness and focus on health can lead to a higher demand for gym memberships, even at higher prices, indicating that demand may be somewhat elastic.
From the formula for price elasticity of demand:
ext{PED} = rac{ ext{% change in quantity demanded}}{ ext{% change in price}}
A typical example is if a 5% increase in membership fees might reduce new memberships by 10%, leading to a calculated elasticity of -2 (which indicates elastic demand).
Thus, this suggests that campaigns promoting health could work positively to balance the impact of increased prices by encouraging new memberships, potentially maintaining or even increasing overall membership numbers.
Step 2
Factors Influencing PED
Answer
The effectiveness of media campaigns also relies on various external factors, such as seasonal trends and economic conditions. For instance, in January, many individuals may seek to join gyms due to New Year resolutions, which can create a spike in demand irrespective of price changes.
However, economic climates can affect disposable income, thereby affecting demand elasticity. If the campaigns resonate well with the audience in times of economic prosperity, the PED might remain elastic. Conversely, during economic downturns, the demand may become more inelastic as consumers prioritize essential expenditures.
Step 3
Counterbalance Effects
Answer
Additionally, factors like health trends and competition can counteract the effectiveness of media campaigns. If a particular gym offers lower prices or better services, the PED may shift further, challenging the anticipated outcome of the health campaigns.
In summary, while media health campaigns have the potential to positively influence the price elasticity of demand for health and fitness clubs by driving awareness and membership, their effectiveness is moderated by external factors such as economic conditions, seasonality, and competition.