Question

In 2016, Philadelphia imposed a tax of 1.5 cents per ounce on sweetened beverages, and PepsiCo indicated that its sales in Philadelphia fell by 40 percent after the tax took effect. If the price of PepsiCo's sweetened beverages in Philadelphia increased by 32 percent following the implementation of the tax, then demand for sweetened beverages in Philadelphia would be A. elastic. B. inelastic. C. unit elastic. D. perfectly inelastic

Answer 1

The correct answer is letter "A": elastic.

Step-by-step explanation:

Elasticity is a measurement of the reaction of one variable to another. It can determine the amount of the supply or demand for a good or service changes with the price of goods or consumer income. Elasticity is calculated by dividing the percentage change in quantity demanded by the percentage change in price. If the result is equal or greater than one (1) implies that the good or service is elastic. If the result is lower than one (1) the good or service is inelastic.

Thus, if PepsiCo sales dropped by 40% after a tax was imposed on sweetened beverages in Philadelphia, the demand for sweetened beverages in that city is elastic.