Question

If the price of Coca-Cola increases from 50 cents to 60 cents per can and the quantity demanded decreases from 100 cans to 50 cans, then the demand for Coca-Cola is _____ a. perfectly inelastic. b. perfectly elastic. c. unit elastic. d. inelastic. e. elastic.

Answer 1

Answer:

E. Elastic

Explanation:

Unit elastic demand is when the quantity demanded changes by the same percentage that the price does.

Inelastic demand is when the quantity demanded changes less than the price does.

Elastic demand is when an increase in prices causes a bigger percentage fall in demand. It is also when price or other factors have a big effect on the quantity consumers want to buy. In this case; the price rises 20% (50 to 60) and demand falls 50% (100 to 50), so the demand for Coca-Cola is elastic

Answer 2

Answer:

e. elastic

Explanation:

To ascertain the degree of responsiveness of the demand of Coca-Cola to change in price, we use the formula: % change in QD / % change in Price

% change in QD = (Q2 – Q1)/Q1 × 100% = (50 – 100)/100 × 100  

% change in QD = – 50/100 × 100 = – 50%  

% change in Price = (60 – 50)/50 × 100% = 10/50 × 100%

% change in Price = 20%

Price elasticity of demand = % change in QD / % change in Price = –50%/20%

PED = – 2.5%

The demand is elastic because change in price leads to a greater % change in demand. i.e. PED = – 2.5%