Tasty Treat Tea is a popular iced tea drink. When the manufacturer begins to use imported tea leaves, the price rises by 10 percent , and the quantity demanded falls by 20 percent The fact that quantity demanded changed by more than the price change suggests that
Answer
A
The demand for Tasty Treat Tea is elastic.
B
The demand for Tasty Treat Tea is inelastic.
C
The consumer no longer prefers the iced tea drink.
D
The consumer no longer shops at Tasty Treat Tea.
Explanation
Price rises by 10% while quantity demanded falls by 20%. The price elasticity of demand is 20% ÷ 10% = 2, which is greater than 1, so demand is elastic. Therefore, the correct choice is “The demand for Tasty Treat Tea is elastic.”
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