Pepsi vendors who raise their price at professional sporting events increase total revenue because the price elasticity of demand is ________.When they raise their prices at gas stations,they decrease total revenue because the price elasticity of demand is ________.
A) elastic; inelastic
B) unitary elastic; elastic
C) elastic; elastic
D) inelastic; elastic
E) elastic; unitary elastic

Question

Quizplus · Accepted Answer

The fact that Pepsi vendors are able to raise their prices at professional sporting events and increase total revenue suggests that the price elasticity of demand in this setting is inelastic. In other words, consumers are willing to pay a higher price for the convenience of purchasing a Pepsi at a sporting event, and are likely to do so even if the price increases. When vendors raise their prices at gas stations, however, they decrease total revenue, indicating that the price elasticity of demand in this setting is elastic. Consumers have many options for purchasing beverages at gas stations, and are more likely to switch to a substitute product (e.g. a different brand of soda, or a different type of beverage) if the price of Pepsi increases.

Pepsi Vendors Who Raise Their Price at Professional Sporting Events