Micro Economics & Macro Economics
Dec 2025 Examination
Q1. A popular coffee brand, BrewBuzz, has introduced a loyalty program offering every 6th coffee free. At the same time, a new health study revealed that moderate coffee consumption boosts productivity and reduces stress. These developments have attracted new customers and encouraged existing ones to buy more coffee.
Based on the above scenario, apply your understanding to identify whether this scenario reflects a movement along the demand curve or a shift of the demand curve. Discuss the direction of the shift and how this change could influence BrewBuzz’s sales volumes and potential pricing strategy. (10 Marks)
Ans 1.
Introduction
Understanding how customers respond is important for making business plans, especially in sectors like coffee, where people make decisions based on both price and other reasons. There are two things happening at the same time with BrewBuzz, a well-known coffee brand: a loyalty program that gives you a free coffee every sixth time you buy one, and a new health research that says drinking coffee in moderation makes you more productive and less stressed. These events have made current customers buy more and brought in new customers. From a microeconomic point of view, it’s important to figure out whether these changes are a movement
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Q2(A). A premium coffee chain, “Bean Bliss,” recently increased the price of its signature latte by 20% due to rising operational costs. Following this, the chain observed varied changes in sales across different outlets. In metropolitan cities, the sales remained almost unchanged, while in smaller towns, there was a significant drop in demand. Interestingly, customers who were highly brand loyal continued purchasing despite the price hike, whereas price-sensitive customers shifted to local coffee shops.
Analyze the above scenario and identify how different determinants of elasticity of demand—such as availability of substitutes, level of income, brand loyalty, time frame, share in total expenditure, competitive nature of the industry, and preferences/habits—are influencing the elasticity of demand for “Bean Bliss” in different markets. Provide a detailed explanation linking each determinant to the observed customer behavior. (5 Marks)
Ans 2A.
Introduction
The amount demanded’s reactivity to a price change is measured by price elasticity of demand, or PED. Knowing the factors of elasticity is crucial for Bean Bliss, a premium coffee chain, in order to optimise revenue, price strategy, and market segmentation. Due to increases in operating costs, the chain in the scenario increased the price of its trademark latte by 20%. varying markets showed varying sales results after the price increase: sales in urban areas changed very little, whereas sales in smaller towns significantly decreased. Additionally, when price-conscious
Q2(B) A consumer electronics company, TechNova, is preparing to launch a next-generation smart home device. With no reliable historical data available, the management is considering using a structured approach to gather forecasts from industry experts, researchers, and experienced marketers. The process involves several rounds of anonymous feedback, with each round refining the estimates until a consensus is reached.
Evaluate the above demand forecasting method being used in the given scenario, and the technique in detail. You are required to justify whether this method is the most appropriate choice for TechNova, providing well-reasoned arguments supported by the nature of the product, market uncertainty, and the decision-making needs of the company. (5 Marks)
Ans 2B.
Introduction
A key component of strategic management for businesses launching new goods is demand forecasting. Businesses may make well-informed judgements about production levels, inventory management, pricing strategies, marketing campaigns, and resource allocation when they have accurate forecasts of customer demand. The stakes are especially high in quickly changing sectors like consumer electronics, where forecasting is inherently imprecise due to technology innovation, shifting customer tastes, and competitive pressures. Consumer electronics manufacturer TechNova is getting ready to introduce a cutting-edge smart home appliance. The business confronts significant uncertainty about possible market demand since there is a dearth of trustworthy past sales data for comparable items. Therefore, traditional quantitative forecasting techniques that mostly depend on historical sales patterns are inappropriate. TechNova intends
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