Question

Tasty Treat Tea is a popular iced tea drink. When the manufacturer begins to use imported tea leaves, the price rises by 10%, and the quantity demanded falls by 20%. The fact that quantity demanded changed by more than the price change suggests that:

Answer 1

B. The demand for Tasty Treat Tea is elastic.

Answer 2

Given that,

Percent Change in prices = 10%

Percent Change in quantity demanded = 20%

Therefore,

Price elasticity of demand =
`(Percent Change in quantity demanded)/(Percent Change in prices)`

Price elasticity of demand =
`(20)/(10)`

Price elasticity of demand = 2

Hence, price elasticity of demand is greater than 1 which means that the Tasty Treat Tea has a elastic demand.