Question

1. One study found that the price elasticity of demand for soda is – 0.81. a. Is the demand for soda elastic, is it inelastic? If the price of soda increased by 10%, would consumer expenditure in soda beverages increase? Briefly explain.

       The same study also found that the price elasticity of demand for Coca Cola is – 1.41.

1. Coca cola is a type of soda, so why isn’t its price elasticity the same as the price elasticity for soda as a product?

Answer 1

a) As the value of the elasticity is less than 1, we can say that the demand for soda is inelastic i.e. if the price of soda increase by 1% the demand will decrease by only0.81%.

If the price of soda increase by 10% then the consumer expenditure on the soda will increase as the demand is inelastic so even at a higher price the demand will not decrease much in the market.

b) It is price elastic because coke is a single brand that has many substitutes i.e. if the price of coke increase people will just switch to other brans but there is no such substitute available for soda.