Question

How do I calculate price elasticity of demand without quantity?

A Starbucks Java Jolt Just Got More Expensive

Starbucks announced today that it is increasing the price of its brewed coffee by 10 cents a cup, or about 4 percent. A large "venti" cup of java will now cost $2.45 in Starbucks' 14,000 U.S. locations. The company said the price increase was justified by rising costs, including labor.

Analysts predicted that the price hike wouldn't deter most customers, as company loyalty is extremely high. Whatever sales might be lost for price-sensitive customers would be more than offset by higher revenues from loyal customers. The company's stock rose after the announcement.

a- Q is

b- Calculate price elasticity of demand.

(in absolute value)

Answer 1

To calculate price elasticity of demand without the quantity, you need to know the percentage change in price and the price elasticity of demand coefficient. Without the quantity information, it is not possible to calculate the exact price elasticity of demand. However, you can still make some general statements based on the given information. In this case, the price of brewed coffee increased by 10 cents, which is a 4% increase. So, you can say that the price elasticity of demand is likely to be inelastic.

Step-by-step explanation:

Price elasticity of demand measures the responsiveness of quantity demanded to changes in price. To calculate price elasticity of demand without the quantity, you need to know the percentage change in price and the price elasticity of demand coefficient. The formula is:

E = (ΔQ / Q) / (ΔP / P)

Where:

E is the price elasticity of demand.

ΔQ / Q is the percentage change in quantity demanded (which you don't have in this case).

ΔP / P is the percentage change in price (which you do have).

Without the quantity information, it is not possible to calculate the exact price elasticity of demand. However, you can still make some general statements based on the given information. In this case, the price of brewed coffee increased by 10 cents, which is a 4% increase. So, you can say that the price elasticity of demand is likely to be inelastic because a 4% increase in price is not expected to result in a significant decline in quantity demanded.

The price elasticity of demand can be calculated without specific quantity data by using the known elasticity coefficient of 0.3 for coffee, implying a 3% decrease in quantity demanded for every 10% increase in price. This shows that coffee demand is inelastic. For Starbucks' specific case, the 4% price rise likely leads to a 1.2% decrease in quantity demanded.

To calculate the price elasticity of demand without specific quantity data, we need to rely on the provided elasticity coefficients or estimate the percentage change in quantity demanded based on given information. If the elasticity of coffee demand is about 0.3, this suggests that for a 10% increase in price, the quantity demanded will decrease by approximately 3%. This is a measure of inelastic demand, which indicates that demand doesn't change significantly with price changes.

The scenario provided cites that Starbucks increased the price of its brewed coffee by 10 cents per cup or roughly 4%. Using the elasticity coefficient of coffee demand (0.3), we can infer that this would lead to a decrease in the quantity of coffee sold by about 1.2% (0.3 times the percentage change in price, which is 4%).

It is important to note, when calculating price elasticity of demand, that if we were provided with actual quantity data before and after the price change, we could use the standard formula for elasticity:

Price Elasticity of Demand (PED) = (% Change in Quantity Demanded) / (% Change in Price).