Final answer:
The elasticity of demand for Minute Maid, given a 50% price decrease and a 25% increase in quantity demanded, is calculated as 0.5 indicating an inelastic demand since the change in quantity demanded is smaller than the change in price.
Step-by-step explanation:
The elasticity of demand measures how much the quantity demanded of a good responds to a change in price. In this scenario, the price of Minute Maid decreases by 50%, and the quantity demanded increases by 25%. To calculate the elasticity, we use the formula:
Elasticity of Demand (Ed) = Percentage Change in Quantity Demanded / Percentage Change in Price
Plugging in the values we have:
Ed = (25% / -50%) = -0.5
Since we interpret elasticity values as absolute numbers, we drop the negative sign, which typically indicates the inverse relationship between price and demand. Therefore, the elasticity of demand for Minute Maid in this case is 0.5, which means it is inelastic since the percentage change in quantity demanded is less than the percentage change in price.
When a product has an elastic demand, a small change in price results in a large change in quantity demanded. Conversely, with inelastic demand, changes in price have a smaller effect on the quantity demanded. As the demand elasticity for Minute Maid is less than 1, the demand is considered inelastic.