The Initial Price of a Cup of Coffee Is $1,and

question 9

Essay

The initial price of a cup of coffee is $1,and at that price,400 cups are demanded.If the price falls to $0.90,the quantity demanded will increase to 500.
a.Calculate the (arc)price elasticity of demand for coffee.
b.Based on your answer,is the demand for coffee elastic or inelastic?
c.Based on your answer to a.,if the price of coffee is increased by 10%,what will happen to the revenues from coffee? Carefully explain how you know.

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Definitions:

Catch-Up Effect

The theory that poorer economies will tend to grow at a faster rate than wealthier economies and thus converge in terms of income per capita over time.

Capital Per Worker

The amount of capital stock available per employee, used as an indicator of productivity and economic growth.

Produced Factor

A term that does not correspond to a widely recognized economic concept as described; thus, it's considered as NO.

Capital Per Worker

The amount of capital stock available per employee in the workforce.