Question

Freeze Ice Cream Shop sells its specialty shakes for $3.50 each. In the summer months, the shop typically sells 200 shakes a day. The shop's owner thinks if he reduces the price to $3 he will increase sales significantly. However, when he reduced the price, he only sold about 15 more shakes per day. This represents demand that is :___________

Answer 1

As a result of the demand increasing only slightly compared to the reduction in price, the demand must be inelastic.

Why is the demand inelastic?

The demand is considered to be inelastic if the price elasticity is less than 1.

The price elasticity is:

= (%Change in quantity/% Change in price)

Solving gives:

= 15 / 200 ÷ 0.50 / 3.50

= -0.525

In conclusion, the demand for the shakes is inelastic.

Find out more on inelastic demand at brainly.com/question/1899986.