Question
The company increased the price of brewed coffee from $1.95 to $2.15 for a tall (small) cup, effective June 2018. The response of consumers has
The company increased the price of brewed coffee from $1.95 to $2.15 for a tall (small) cup, effective June 2018. The response of consumers has been muted, with traffic at Starbucks declining 2 percent in the six months following the price increase. Despite the drop in traffic, sales revenue climbed 1 percent.
a. By what percent did Starbucks increase the price of a tall cup of brewed coffee (use the midpoint method)?
b. Calculate the price elasticity of demand for brewed coffee if 50 percent of the decline in traffic was due to the increased brewed coffee prices.
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