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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 makes Irish goods more expensive in the UK market. As the Sterling depreciates, UK consumers will need to pay more for Irish products due to the increased exchange rate. Persistently lower Sterling will lead to higher prices for Irish goods in the UK economy. In many cases, sellers in the UK may choose not to pass on the higher prices in order to maintain market share; however, this could lead to reduced profit margins.
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 informs them about consumer responsiveness to price changes.
If Irish products have inelastic demand, exporters can increase prices without a significant drop in sales volume, which can bolster revenue. On the other hand, if demand is elastic, raising prices could lead to a more considerable reduction in quantity sold, ultimately lowering total revenue.
Therefore, knowledge of PED can guide exporters in their pricing strategies, allowing them to adjust prices appropriately to maximize revenue in response to market changes.