Final answer:
a. The price elasticity of demand for the soft drink is -0.75, indicating elastic demand. b. The price change from $3 to $2 led to an increase in total revenue. c. The price change likely made the soft drink more affordable, resulting in increased demand. d. Factors such as substitutes, consumer income, and preferences can influence the elasticity of soft drink demand.
Step-by-step explanation:
a. To calculate the price elasticity of demand, use the formula:
Elasticity = (Percentage change in quantity demanded) / (Percentage change in price)
Using the given information, the percentage change in quantity demanded is:
((50 - 40) / 40) x 100 = 25%
And the percentage change in price is:
((2 - 3) / 3) x 100 = -33.33%
Plugging these values into the formula, we get:
Elasticity = 25% / -33.33% = -0.75
Since the elasticity is negative, we can conclude that the demand for the soft drink is elastic.
b. To assess the impact of the price change on total revenue, we need to determine whether demand is elastic or inelastic. In this case, since the demand is elastic, a decrease in price will result in an increase in total revenue. So, the price change led to an increase in total revenue.
c. The price change from $3 to $2 likely made the soft drink more affordable to consumers, leading to an increase in demand. Consumers may have been more willing to purchase the soft drink at the lower price, resulting in the increased demand.
d. Factors that could influence the elasticity of soft drink demand include availability of substitutes, consumer income, and consumer preferences. If there are many substitutes available, the demand may be more elastic as consumers have more options to choose from. Additionally, if consumers have limited income, they may be more sensitive to price changes, making the demand more elastic. Finally, consumer preferences, such as brand loyalty, can also impact the elasticity of demand.