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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)
Answer
Price elasticity of demand measures how much the quantity demanded of a good responds to a change in price. It is calculated using the formula:
\text{PED} = \frac{% \text{ change in quantity demanded}}{% \text{ change in price}}
For instance, a 5% increase in membership fees could lead to a 10% decrease in new memberships, indicating a PED of -2, which shows elastic demand.
Step 2
Impact of Media Health Campaigns
Answer
Media health campaigns can potentially reduce price elasticity. Such campaigns often focus on the health benefits associated with memberships, making consumers more health-conscious. This health focus may lead to consumers emphasizing their well-being over costs, suggesting that they may be less sensitive to price increases. Thus, even with rising fees, demand may not drop significantly.
Step 3
Counterbalancing Factors
Answer
However, other factors can influence PED. For instance, seasonal trends, such as New Year fitness resolutions, can increase demand temporarily. If there is a poor health climate or economic downturn, prospective members might be less inclined to join clubs due to financial constraints. This could counteract the effect of health campaigns.
Step 4
Overall Judgment
Answer
The potential impact of media health campaigns on PED is complex. While such campaigns might foster stronger brand loyalty and reduce price sensitivity among health-focused consumers, overall elasticity will depend on various external economic factors and individual lifestyle choices. Clubs must find a balance in their pricing strategies while considering these influences to maximize membership retention.