Explain aid of a market model , Marketing Management

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Read the article entitled 'Easter egg prices rise by around 5 per cent over last year' and answer questions 1, 2 and 3. Easter egg prices rise by around 5 per cent over last year CHOCOLATE lovers are being slugged more for many of their favourite

Easter treats this year.

Manufacturing giant Cadbury blames a massive rise in world cocoa and sugar costs, and the recession, for average 5 per cent price increases for most of its Easter range.

The impact has added about 5c to 30c to scores of top sellers on store shelves. For example, a Cadbury Dairy Milk Bunny cost $4.49 last Easter but will set back parents $4.71 this year. Major supermarkets Coles and Woolworths last night confirmed the wholesale price raises had been passed on to shoppers. Cadbury spokesman Daniel Ellis said the cost of cocoa had surged 150 per cent in the past three years, while sugar was up 120 per cent.

Mr Ellis said demand had soared during the world downturn, as chocolate was considered a comfort food in times of economic stress. This, along with more investor interest in raw commodities, had pushed prices skywards.

Confectionery Manufacturers Association chief Trish Hyde said the rest of the industry faced similar pressures to raise chocolate prices.

Mr Ellis said many of the company's 80 Easter products had increased.

"Despite our best efforts to keep costs down, unfortunately the increases of raw ingredients continues to rise to unprecedented levels," he said.

1. Assuming a competitive market, explain with the aid of a market model how the price and quantity of Easter eggs are established.

2. Assuming pure competition, explain and clearly discuss the factors causing rises in the price of Easter eggs compared to the previous years. Please be sure to discuss and clearly illustrate the equilibrating process.

3. Explain why you think the demand for chocolate Easter eggs is likely to be elastic or inelastic and comment how the rise in price will impact the value of the supplier's revenue.


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