A local coffee shop reduces the price of its lattes from $5 to $4. Following this price cut, the shop notices that the quantity demanded for lattes increases significantly, resulting in an overall increase in total revenue. What can be concluded about the price elasticity of demand for lattes based on this scenario?

In this scenario, we can conclude that the price elasticity of demand for lattes is elastic. This means that when the price of lattes was reduced from $5 to $4, the quantity demanded increased significantly, showing that customers are responsive to price changes. Elastic demand indicates that a lower price leads to a proportionally larger increase in the quantity demanded, which in this case resulted in higher total revenue for the coffee shop. For example, if the shop sold 10 lattes before the price cut and 20 lattes after, the increase in sales would more than make up for the lower price per latte. Therefore, we can see that the demand for lattes is elastic, as the lower price brought in more customers and increased revenue overall.