If Starbucks’s marketing department estimates the income elasticity of demand for its coffee to be 2.35,...
If Starbucks’s marketing department estimates the income elasticity of demand for its coffee to be 2.35, how will the prospect of an economic boom (expected to increase consumers’ incomes by 4 percent over the next year) impact the quantity of coffee Starbucks expects to sell?
Homework Answers
Let the change in the quantity be (x).
Income elasticity = Change in the % demand / Change in the % income.
2.35 = (x) / 4.
(x) = 2.35 x 4
(x) = 9.4%.
If the income of the consumer increased by 4% then the demand for the starbuck cofee will increase by 9.4%.
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