ECON 2001.02 Chapter Notes - Chapter 4: Demand Curve, Rice Krispies, Hand Sanitizer

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Review questions: you are advising a coffee shop manager who wants to estimate how much sales will change if the price of a latte rises. Explain why he should measure elasticity in percentage terms rather than in terms of dollars and cups. Answer: if the coffee shop manager measures elasticity in percentage changes he will have an understanding of the price sensitivity of demand for lattes that will be consistent regardless of the units of measure. Answer: using the mid-point method to calculate elasticity is useful because the coffee shop manager will have a single measure of the price sensitivity of demand over a particular range of prices regardless of the direction price is moving. For example, he would know how sensitive demand is to a price change between and regardless of whether price increases from to or decreases from to .

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