The vending machines sell soft drinks at $3.50 per bottle.

Now at this price, consumers buy

4,000 bottles per week. To increase sales, it has been decided to decrease the price to $2.50,
increasing sales to5,000 bottles. Now, calculate the price elasticity of demand.

Answer:

To calculate the price elasticity of demand, we can use the following formula:

% change in quantity demanded / % change in price = elasticity of demand

In this case, the price decreased from $3.50 to $2.50, which represents a change in price of -28.57%
(100*(3.50-2.50)/3.50).

At the same time, the quantity of bottles sold increased from 4,000 to 5,000 bottles, which
represents a change in quantity demanded of 25% (100*(5,000-4,000)/4,000).

Plugging these values into the formula, we get:

25% / -28.57% = 0.87

The elasticity of demand is 0.87, which means that the demand for the soft drinks is elastic. This
means that the percentage change in quantity demanded is greater than the percentage change in
price, indicating that the demand for the product is sensitive to price changes, and the company will
see an increase in the sales due to the decrease in the price. This means that the decrease in price
has led to an increase in the quantity demanded and a decrease in price has led to an increase in the
demand.