How is Price Elasticity of demand -1.25 for soda?? What formula and model compon
ID: 1107720 • Letter: H
Question
How is Price Elasticity of demand -1.25 for soda?? What formula and model components are considered for calculation? TABLE 2: Censumption, Demand Elasticity and Ta through Assumptions Table Price (per fuid ounce) National Consumption Califernis Consumptise Price Elasticity of Tax lecidence (P- Ifrom your sources) ' Demand Through' Threugh) 1.41 1.21 1.21 Tax (per fluid ounce) 002 (ouncesyear) 00866 0.0865 0 0765 Segary Beverage Seda Fruit Beverages Sports Drinks linergy Drinks Enhanced Waer Ready-to-Drink Tea Ready to Dritk Coffee e,on 223,052,800,000 203,456,000,000 18,400.000 45,376,000,000 8,880,000,000 79,206,400,000 ,592,000.000 1764,761,600,000 470% 17,105,659,170 12,459.850) 3815,008,404 4950 363,774 6659,315,442 0.02 431% 00869 0.02 002 S 0.0607 0.2464 320% 3,163,955
Explanation / Answer
It is completely right. The price elasticity of soda being -1.25 means the demand for soda is very elastic.i.e the price demand for soda is inversely related. It also means an increase in the price of soda will decrease its demand.
Price elasticity of a demand can be defined as the response the quantity demanded shows relative to a change in the price of the product. For example, Burgers are sold at a price of $10 each and government thought of putting 20% tax on its price effectively increasing its price by $2( the previous price was $10 and now its sold for $12). The quantity demanded was 10 units. After the change in the price i.e. increase to $12 the demand decreased 5 units. That means with 20% change in price there is only -50% change in demand.
ed= elasticity of demand, q= quantity, and p = price.
Ed= % change in quantity / % change in demand
= -50 / + 20
= -2.5
This shows that the demand for the Burgers in the example is very elastic and get heavily affected by a change in price. If we see the things like Soda, or Enhanced water. The price elasticity of these goods is highly elastic, any change in price affects the demand for goods heavily.
Consider for example before 4th of July Coca-Cola decides to increase the price of its beverages or government decides to increase the tax on it, will it affect the demand ? yes, it will and the demand will fall sharply people will move to any other beverages like coffee.
A negative price elasticity means the demand for the product is elastic if the price elasticity was 1 that would mean the product is unitary elastic any increase in its price affect the demand equally and if the price elasticity was above 1, it means the demand is not affected more by any price change in its product.
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