When the price of coffee increases 5%, quantity demanded decreases 10%. The price elasticity of demand for coffee is ________ and total revenue from coffee sales will ________.
A) inelastic; increase
B) inelastic; decrease
C) elastic; increase
D) elastic; decrease

Question

Quizplus · Accepted Answer

The price elasticity of demand is calculated as the percentage change in quantity demanded divided by the percentage change in price. Here, it is -10%/5% = -2, which indicates elasticity (absolute value greater than 1). When demand is elastic, an increase in price leads to a decrease in total revenue.

When the Price of Coffee Increases 5%, Quantity Demanded Decreases