Question

Income and Starbucks Coffee Shops. Starbucks just hired you to determine whether your city could support a new Starbucks coffee shop. There are currently four Starbucks coffee shops in the city, and each has just enough customers to survive. The average household income in the city is expected to increase by 10 percent per year for the next 20 years. Suppose the income elasticity for Starbucks coffee products is 1.25 and the population is assumed to be constant. a. By what percentage will demand for Starbucks coffee products increase each year based on income growth? O A. 125% OB. 12.5% OC. 8.0%. OD. 1.25% b. How soon will the area have enough demand to support a fifth Starbucks? O A. 2 years. OB. 12 years. O C. 1 year OD. 8 years.

Answer 1

The cross price elasticity of demand measwas the responsive of demand to the charges in the prices of the other goods, indication how much more or less of a specific product is purchased as the price of the other product charges. a) we need to find out the by what percentage will the demand for coffee increase each year, given that the Income elasticity of demand for starbucks coffee is 1.25 and the income is expected to increase lopercent each year. the demand for the coffee tallll increase by, - porcentage change in quantity demanded = 10%* 1.25 is the demand both increase by 12.5% each year. = 12.5% The option 'B' is correct answer. b) ke have assumed the population of the city is constant and there are a starbucks shop in the ety, and each has gust enough customers to swinere. Given the satuation and the 12.5% Increase in the demand for the starbucks coffee, it will advisable to open the fofth store after 2 years. Let the other u shops aufay the profitability for the present struation. the option À is correct Answer.