You are advising a coffee shop manager who wants to estimate how much sales will change if the
To advise the coffee shop manager the reason for using percentage method to calculate the elasticity.
Explanation of Solution
The elasticity of demand indicates the change in quantity demanded due to a change in price. However, the elasticity is unitless that means only magnitude of change is considered for example elasticity could be 1, 1.5, 1.7, etc. Here, elasticity is just a magnitude (numeric value). Thus, while calculating the elasticity, the absolute values like, dollars, units (number of teacup) does not matter. So, using the percentage method avoids the problem of different units of calculation and the problem of direction to change. Thus, it is advised to the manager to estimate the change in percentage term.
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