You are advising a coffee shop manager who wants to estimate how much sales will change if the price of a latte rises. You tell him that he should measure the change in sales using the percentage change in quantity of coffee sold rather than the number of cups of coffee or the total ounces of coffee sold. Similarly, you tell him that he should measure the price increase in percentage terms rather than in terms of absolute dollars. Explain why he should measure elasticity in percentage terms rather than in terms of dollars and cups.

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Answer 1

Textbook Question

Chapter 4, Problem 1RQ

You are advising a coffee shop manager who wants to estimate how much sales will change if the price of a latte rises. You tell him that he should measure the change in sales using the percentage change in quantity of coffee sold rather than the number of cups of coffee or the total ounces of coffee sold. Similarly, you tell him that he should measure the price increase in percentage terms rather than in terms of absolute dollars. Explain why he should measure elasticity in percentage terms rather than in terms of dollars and cups.

Expert Solution & Answer

To determine

To advise the coffee shop manager the reason for using percentage method to calculate the elasticity.

Explanation of Solution

The elasticity of demand indicates the change in quantity demanded due to a change in price. However, the elasticity is unitless that means only magnitude of change is considered for example elasticity could be 1, 1.5, 1.7, etc. Here, elasticity is just a magnitude (numeric value). Thus, while calculating the elasticity, the absolute values like, dollars, units (number of teacup) does not matter. So, using the percentage method avoids the problem of different units of calculation and the problem of direction to change. Thus, it is advised to the manager to estimate the change in percentage term.

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Answer 2

Textbook Question

Chapter 4, Problem 1RQ

You are advising a coffee shop manager who wants to estimate how much sales will change if the price of a latte rises. You tell him that he should measure the change in sales using the percentage change in quantity of coffee sold rather than the number of cups of coffee or the total ounces of coffee sold. Similarly, you tell him that he should measure the price increase in percentage terms rather than in terms of absolute dollars. Explain why he should measure elasticity in percentage terms rather than in terms of dollars and cups.

Expert Solution & Answer

To determine

To advise the coffee shop manager the reason for using percentage method to calculate the elasticity.

Explanation of Solution

The elasticity of demand indicates the change in quantity demanded due to a change in price. However, the elasticity is unitless that means only magnitude of change is considered for example elasticity could be 1, 1.5, 1.7, etc. Here, elasticity is just a magnitude (numeric value). Thus, while calculating the elasticity, the absolute values like, dollars, units (number of teacup) does not matter. So, using the percentage method avoids the problem of different units of calculation and the problem of direction to change. Thus, it is advised to the manager to estimate the change in percentage term.

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Answer 3

Textbook Question

Chapter 4, Problem 1RQ

You are advising a coffee shop manager who wants to estimate how much sales will change if the price of a latte rises. You tell him that he should measure the change in sales using the percentage change in quantity of coffee sold rather than the number of cups of coffee or the total ounces of coffee sold. Similarly, you tell him that he should measure the price increase in percentage terms rather than in terms of absolute dollars. Explain why he should measure elasticity in percentage terms rather than in terms of dollars and cups.

Expert Solution & Answer

To determine

To advise the coffee shop manager the reason for using percentage method to calculate the elasticity.

Explanation of Solution

The elasticity of demand indicates the change in quantity demanded due to a change in price. However, the elasticity is unitless that means only magnitude of change is considered for example elasticity could be 1, 1.5, 1.7, etc. Here, elasticity is just a magnitude (numeric value). Thus, while calculating the elasticity, the absolute values like, dollars, units (number of teacup) does not matter. So, using the percentage method avoids the problem of different units of calculation and the problem of direction to change. Thus, it is advised to the manager to estimate the change in percentage term.

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Answer 4

Textbook Question

Chapter 4, Problem 1RQ

You are advising a coffee shop manager who wants to estimate how much sales will change if the price of a latte rises. You tell him that he should measure the change in sales using the percentage change in quantity of coffee sold rather than the number of cups of coffee or the total ounces of coffee sold. Similarly, you tell him that he should measure the price increase in percentage terms rather than in terms of absolute dollars. Explain why he should measure elasticity in percentage terms rather than in terms of dollars and cups.

Expert Solution & Answer

To determine

To advise the coffee shop manager the reason for using percentage method to calculate the elasticity.

Explanation of Solution

The elasticity of demand indicates the change in quantity demanded due to a change in price. However, the elasticity is unitless that means only magnitude of change is considered for example elasticity could be 1, 1.5, 1.7, etc. Here, elasticity is just a magnitude (numeric value). Thus, while calculating the elasticity, the absolute values like, dollars, units (number of teacup) does not matter. So, using the percentage method avoids the problem of different units of calculation and the problem of direction to change. Thus, it is advised to the manager to estimate the change in percentage term.

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Answer 5

Textbook Question

Answer 6

Textbook Question

Answer 7

Expert Solution & Answer

To determine

To advise the coffee shop manager the reason for using percentage method to calculate the elasticity.

Explanation of Solution

The elasticity of demand indicates the change in quantity demanded due to a change in price. However, the elasticity is unitless that means only magnitude of change is considered for example elasticity could be 1, 1.5, 1.7, etc. Here, elasticity is just a magnitude (numeric value). Thus, while calculating the elasticity, the absolute values like, dollars, units (number of teacup) does not matter. So, using the percentage method avoids the problem of different units of calculation and the problem of direction to change. Thus, it is advised to the manager to estimate the change in percentage term.

Answer 8

Expert Solution & Answer

To determine

To advise the coffee shop manager the reason for using percentage method to calculate the elasticity.

Explanation of Solution

The elasticity of demand indicates the change in quantity demanded due to a change in price. However, the elasticity is unitless that means only magnitude of change is considered for example elasticity could be 1, 1.5, 1.7, etc. Here, elasticity is just a magnitude (numeric value). Thus, while calculating the elasticity, the absolute values like, dollars, units (number of teacup) does not matter. So, using the percentage method avoids the problem of different units of calculation and the problem of direction to change. Thus, it is advised to the manager to estimate the change in percentage term.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

To determine

To advise the coffee shop manager the reason for using percentage method to calculate the elasticity.

Answer 12

Explanation of Solution

The elasticity of demand indicates the change in quantity demanded due to a change in price. However, the elasticity is unitless that means only magnitude of change is considered for example elasticity could be 1, 1.5, 1.7, etc. Here, elasticity is just a magnitude (numeric value). Thus, while calculating the elasticity, the absolute values like, dollars, units (number of teacup) does not matter. So, using the percentage method avoids the problem of different units of calculation and the problem of direction to change. Thus, it is advised to the manager to estimate the change in percentage term.

Answer 13

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