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Outline the potential impact a fall in the value of Sterling (£) against the Euro (€) would have on the price UK consumers pay for Irish products - Leaving Cert Economics - Question c - 2018
Question c
Outline the potential impact a fall in the value of Sterling (£) against the Euro (€) would have on the price UK consumers pay for Irish products. Explain how knowl... show full transcript
Worked Solution & Example Answer:Outline the potential impact a fall in the value of Sterling (£) against the Euro (€) would have on the price UK consumers pay for Irish products - Leaving Cert Economics - Question c - 2018
Step 1
Outline the potential impact a fall in the value of Sterling (£) against the Euro (€) would have on the price UK consumers pay for Irish products.
Answer
A fall in the value of Sterling means that Irish goods will become more expensive for UK consumers. As the value of Pound decreases against the Euro, it leads to increased costs for importing Irish products.
UK consumers will face higher prices for Irish goods as importers might increase their prices to maintain profit margins. This persistent weakening of Sterling may result in higher retail prices as sellers in the UK absorb some of these increased costs to remain competitive. Therefore, UK consumers would end up paying more for Irish products due to the unfavorable exchange rate.
Step 2
Explain how knowledge of price elasticity of demand (PED) might be helpful to Irish exporters who wish to maximise their total revenue in the UK market.
Answer
Understanding price elasticity of demand (PED) is crucial for Irish exporters as it helps inform their pricing strategies in the UK market. If the demand for their products is inelastic, exporters can increase their prices significantly without a substantial drop in the quantity demanded. This can lead to higher overall revenue.
Conversely, if the product's demand is elastic, raising prices might lead to a sharp decrease in quantity sold, ultimately lowering total revenue. Knowing the PED allows exporters to make informed decisions about whether to raise or lower prices based on how sensitive UK consumers are to price changes. This strategy could enhance their revenue and market share in the UK.