Question
A dessert shop owner finds that at the price of $2 each, 200 brownies are sold each day. When the price is increased to $2.50
A dessert shop owner finds that at the price of $2 each, 200 brownies are sold each day. When the price is increased to $2.50 each, 80 brownies are sold.
1. What is the numeric value of the elasticity of demand for brownies? State the formula and show your work to ensure you earn at least partial credit in the case that your final value is incorrect.
2. Using your answer to #1, would demand for these brownies be classified as elastic or inelastic? How did you determine your answer?
3. What does it mean for demand to fall into the category (elastic or inelastic) that you identified in #2? Tell me the definition of the term you picked in #2.
4. Use one of the determinants of the elasticity of demand (# substitutes, necessity vs luxury, broad vs narrow definition, time to adjust, proportion of budget, etc.) to further support why demand for brownies has the elasticity classification that you identified in #2.
5. If you were to graph this demand curve, what would its general shape be based on your answer to #2? Relatively steep? Relatively flat?
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