Question

The economy has slowed down again but Britain's animal lovers have not stopped themselves from spending on gourmet pet food, spoiling their pets even though their budgets are tight. In fact, more than a third of pet owners claim that they would cut back on their own food purchases before that of their pets. Source: The Independent, April 14,2015 a. What does this news clip imply about the income elasticity of demand for gourmet pet food? b. Would the income elasticity of demand be greater or less than 1 ? Explain.

Short answer

The news implies that the income elasticity of demand for gourmet pet food is low and would be less than 1, as it is a necessity for pet owners.

Step-by-step solution

- Understanding Income Elasticity of Demand

Income elasticity of demand measures how the quantity demanded of a good responds to a change in income. It is calculated as the percentage change in quantity demanded divided by the percentage change in income.

- Analyzing the News Clip

The news clip suggests that despite economic slowdowns and tight budgets, pet owners continue to spend on gourmet pet food. More than one-third of pet owners claim they would cut back on their own food purchases before reducing spending on their pets’ food.

- Implication of Income Elasticity

From the behavior described, the demand for gourmet pet food appears to be relatively insensitive to changes in income. This means that the income elasticity of demand for gourmet pet food is likely to be low since pet owners prioritize it highly even in times of reduced income.

- Determining the Elasticity Value

Goods with an income elasticity of demand greater than 1 are considered luxury items, meaning that their demand increases more than proportionally as income rises. However, since gourmet pet food seems to be a necessity for these pet owners, its income elasticity of demand would be less than 1.

Key concepts

gourmet pet food

Gourmet pet food refers to high-quality, often premium-priced food designed specifically for pets. These products often include ingredients like organic meats, vegetables, and added vitamins, which aim to provide better nutrition compared to standard pet food. Pet owners who purchase gourmet pet food are often highly invested in the health and well-being of their pets. This dedication can be so strong that even during economic difficulties, they continue to prioritize spending on gourmet options for their pets.

Gourmet pet food is often marketed with an emphasis on superior quality and health benefits, appealing to consumers who see their pets as part of the family. This emotional connection can make gourmet pet food less susceptible to cuts in spending during financial hardships, as seen in the news clip about Britain's animal lovers.

economic slowdown

An economic slowdown occurs when there is a decline in economic activity across the economy, often indicated by lower GDP growth, reduced consumer spending, and increased unemployment. During such times, households typically become more cautious with their spending and may reduce their expenditures on non-essential items.

Despite the trend of cutting back in various areas, the news clip highlights that Britain's animal lovers maintained their spending on gourmet pet food even during an economic slowdown. This behavior suggests that for these pet owners, gourmet pet food is a priority that does not get easily sacrificed, indicating a unique consumer behavior influenced by strong emotional factors.

necessity goods

Necessity goods are products that consumers will continue to buy regardless of changes in their income levels because they are considered essential for daily life. Examples include basic food items, household utilities, and in this case, pet food.

In the context of the news clip, gourmet pet food appears to be treated as a necessity by many pet owners. This is peculiar because we typically consider gourmet products as luxury goods. However, the prioritization of pet food over even human food by some pet owners implies that the emotional bond and perceived health benefits make gourmet pet food a necessity for them. This reclassifies gourmet pet food's elasticity to align more closely with necessity goods, which typically have an income elasticity of demand less than 1.

consumer behavior

Consumer behavior refers to the choices and actions that individuals take regarding the purchase and use of goods and services. Various factors, including personal preferences, cultural influences, economic conditions, and psychological motivations, shape consumer behavior.

The news clip provides insight into the consumer behavior of pet owners during an economic slowdown. Despite tight budgets, many pet owners prioritize their pets' well-being over their expenditures. This implies a strong emotional connection and commitment to their pets, leading to continued spending on items like gourmet pet food even when incomes are strained. Understanding such behavior helps businesses tailor their strategies to meet consumer needs effectively and anticipates how spending might shift in various economic scenarios.