Question

In the article titled "Price Elasticity, Cross-Price Elasticity, and Income Elasticity in the Market for Alcoholic Beverages. The elasticities reported in the article were calculated using price data for many brands of beer. Why might price elasticity estimates for a product be less reliable if they use data for only one brand of that product? Be detailed in your answers, and reference the lesson materials when appropriate. This is in Principles of Microeconomics.

Answer 1

Price estimates for a product are less reliable if we use data from only one brand of that product because price gets affected by many different factors, they are:

• Personal choice of the consumer: If a consumer prefers a particular brand the price elasticity of that consumer for that particular brand will be much less. This might give a misleading data that no matter what the price elasticity is less.
• Price of the substitute: The price of a product also get affected by the price of the substitute of that product, in this case, the price of other brands of beverages. To get a complete data about price elasticity it becomes important to include a wide range of brands used by the people. If two products are considered a close substitute like red wine and white wine. The price for these products will fluctuate together.  
• External effects: For example, if there an increase in the taxes or an unfavorable report about any beverage it will affect a particular brand more than the other. Like a particular brand having high imported content in its beer. A tax on imports will affect that particular brand more than the other.

Because of all the reasons mentioned above, it becomes important to use data for wide range of brands and products.