If Price of Coffee decreases from 5 tot 4.50, and as a result the Consumer's Demand for Coffee increase from 60 grams to 75 grams, the absolute Price Elasticity of Demand of Coffee is -?

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If Price of Coffee decreases from 5 tot 4.50, and as a result the Consumer's Demand for Coffee increase from 60 grams to 75 grams, the absolute Price Elasticity of Demand of Coffee is -?

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If Price of Coffee decreases from 5 tot 4.50, and as a result the Cons...

Calculating the Absolute Price Elasticity of Demand

To calculate the absolute price elasticity of demand, we need to use the following formula:

|E_p| = ((Q₂ - Q₁) / ((Q₂ + Q₁) / 2)) / ((P₂ - P₁) / ((P₂ + P₁) / 2))

Where:
- Q₁ = initial quantity demanded
- Q₂ = new quantity demanded
- P₁ = initial price
- P₂ = new price

Applying the Formula

Using the information given in the question, we can apply the formula as follows:

Q₁ = 60 grams
Q₂ = 75 grams
P₁ = $5
P₂ = $4.50

|E_p| = ((75 - 60) / ((75 + 60) / 2)) / (($4.50 - $5) / (($4.50 + $5) / 2)))

|E_p| = (15 / 67.5) / (-$0.50 / $4.75)

|E_p| = 0.222

Therefore, the absolute price elasticity of demand for coffee in this scenario is 0.222.

Interpreting the Result

The result of 0.222 indicates that the demand for coffee is relatively inelastic. This means that the change in price from $5 to $4.50 had a relatively small effect on the quantity demanded of coffee. This is because the absolute value of the price elasticity of demand is less than 1.

In other words, a 10% decrease in price led to only a 12.5% increase in quantity demanded (15 / 60 = 0.25, or 25%). If the price had decreased by a larger percentage, the increase in quantity demanded would have been even greater.

Overall, this information can be useful for coffee producers and sellers to understand how changes in price affect the demand for their product.

Answered by Freedom Institute · View profile

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If Price of Coffee decreases from 5 tot 4.50, and as a result the Cons...

If Price of Coffee decreases from 5 to 4.50, and as a result the Consumer's Demand for Coffee increase
from 60 grams to 75 grams, the absolute Price Elasticity of Demand of Coffee is -
(a) 1.5 (b) 3.0
(c) 2.0 (d) 2

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