A coffee shop notices that when they increase the price of coffee by 10%, the quantity demanded decreases by 25%. How should they categorize the demand for coffee?

The coffee shop should categorize the demand for coffee as elastic. This means that the quantity demanded changes a lot when the price changes. In this case, when the price increased by 10%, the quantity demanded fell by 25%. This shows that customers are sensitive to price changes; they buy much less coffee when it costs more. For example, if normally 100 cups of coffee are sold, a 10% price increase might reduce sales to only 75 cups, demonstrating the strong reaction of customers to the price hike.