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Shrinkflation occurs in an economy when there is a/an:
- a)increase in aggregate demand
- b)rise in cost of production
- c)increase in aggregate supply
- d)decrease in cost of production
Correct answer is option 'B'. Can you explain this answer?
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Shrinkflation occurs in an economy when there is a/an:a)increase in ag...
As input prices, which were benign for a few quarters, turn inflationary, the spectre of shrinkflation looms large within the fast-moving consumer goods (FMCG) segment.
- It occurs when goods shrink in size but consumers pay the same price. It occurs when manufacturers downsize products to offset higher production costs but keep retail prices same.
- It is basically a form of hidden inflation.
- Instead of increasing the price of a product, producers reduce the size of the product while maintaining the same price.
- The absolute price of the product doesn’t go up, but the price per unit of weight or volume has increased.
- Reasons: The reasons for shrinkflation are rising production costs and market competition.
- Impacts:
- Shrinkflation runs the risk of turning customers away from a product or brand if they notice they are getting less for the same price.
- Another downside of shrinkflation is that it makes it harder to accurately measure price changes or inflation.
- The price point becomes misleading since the product size cannot always be considered in terms of measuring the basket of goods.
What are Fast-Moving Consumer Goods?
- These are products sold quickly and at a relatively low cost. The FMCG industry is characterized by high-volume sales, quick inventory turnover, and various products catering to consumer needs.
- These goods include essential everyday items such as food and beverages, toiletries, cleaning supplies, and other low-cost household items.
- They have a short shelf life because of high consumer demand (e.g., soft drinks and confections) or because they are perishable (e.g., meat, dairy products, and baked goods).
Hence option (b) is the correct answer.
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Shrinkflation occurs in an economy when there is a/an:a)increase in aggregate demandb)rise in cost of productionc)increase in aggregate supplyd)decrease in cost of productionCorrect answer is option 'B'. Can you explain this answer?
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