Monday, January 5, 2009

Price Elasticity for Retail Coffee Shop

So what do you think the price elasticity of demand for a cup of coffee is at a local coffee shop? My guess would be that it's pretty elastic, especially if there are a lot of nearby options.

Apparently, the owner of one of my local shops disagrees. I stopped by to buy a cup of coffee last Friday, and the cashier says "$2.62". I told her I ordered just a regular cup of coffee thinking she must have misunderstood my order because I know a coffee at this store costs $1.89 from previous visits. She replied that "Prices have gone up a little bit." A little bit?? Oof, that almost a 40% increase. And, this with another coffee shop right next door to this one, and two others within a similar walking distance. I think the owner is going to get an unpleasant lesson in basic economics (I know my quantity demanded is going down, down, down.)

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