Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
Demand is elastic, as the percentage change in quantity demanded is greater than the percentage change in price.
B
Demand is inelastic, as the quantity demanded remains unchanged regardless of price.
C
Demand is unitary elastic, as the percentage change in quantity demanded equals the percentage change in price.
D
Demand is perfectly inelastic, as consumers are willing to buy the lattes at any price.
Understanding the Answer
Let's break down why this is correct
Answer
The coffee shop can calculate price elasticity of demand by dividing the percentage change in quantity sold by the percentage change in price. In this case, a 10 % price increase leads to a 15 % drop in sales, so the elasticity is –15 % ÷ 10 % = –1. 5. Because the absolute value of 1. 5 is greater than 1, the demand for lattes is elastic, meaning consumers are sensitive to price changes.
Detailed Explanation
Elasticity measures how much quantity changes when price changes. Other options are incorrect because The idea that quantity stays the same is called inelastic demand, but here the quantity fell; Unitary elasticity would mean the percentage change in quantity equals the percentage change in price.
Key Concepts
Price Elasticity of Demand
Consumer Behavior
Market Dynamics
Topic
Price Elasticity of Demand
Difficulty
hard level question
Cognitive Level
understand
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