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Premier Food’s Hovis has experienced some significant decline in its bread sales. This is mainly because of
- Increase in price of bread.
- Rival companies keeping the low price.
Hovis’ increase in price of bread was said to be inevitable. They simply could not maintain the price as the production cost were exceeded the selling price. Consumers have turned their back on Hovis for following reasons.
- Whenever there is an increase on price of a product, the demand decrease. It’s the law of demand. (The degree of its decrease is determined by its elasticity). So the consumers started to buy less of their bread.
- Usually, bread are told to be inelastic. However, in the article it reported that there are 2 other rival companies selling bread. This has made a substitution effect for Hovis’ bread. Therefore, it has made the bread elastic.
It’s simple. There are other companies selling low-price bread, but Hovis rose its price. No consumer would leave a cheap bread to the side and buy Hovis’ expensive bread.