Learning Path
Question & Answer1
Understand Question2
Review Options3
Learn Explanation4
Explore TopicChoose the Best Answer
A
The demand for lattes is elastic, as consumers significantly reduced their purchases due to the price increase.
B
The demand for lattes is inelastic, meaning consumers are less responsive to price changes.
C
The total revenue decrease indicates that consumers are indifferent to price changes.
D
The decrease in total revenue suggests that demand is perfectly inelastic.
Understanding the Answer
Let's break down why this is correct
Answer
When the coffee shop raised the price of lattes from $4 to $5, they expected to make more money. However, if their total revenue decreased, it suggests that customers are not willing to buy as many lattes at the higher price. This means the demand for lattes in this price range is elastic, meaning that a small increase in price leads to a larger decrease in the quantity sold. For example, if customers were buying 100 lattes at $4 but only 80 lattes at $5, the shop would earn less overall despite the higher price. This shows that many customers are sensitive to price changes, and the coffee shop may need to reconsider their pricing strategy.
Detailed Explanation
When the price goes up and sales go down, it means people are sensitive to price changes. Other options are incorrect because This answer suggests that people don't care about price changes; This option implies that customers are indifferent, meaning they don't care about prices.
Key Concepts
Total Revenue
Demand Elasticity
Consumer Behavior
Topic
Total Revenue and Demand Elasticity
Difficulty
easy level question
Cognitive Level
understand
Ready to Master More Topics?
Join thousands of students using Seekh's interactive learning platform to excel in their studies with personalized practice and detailed explanations.