Suppose your local espresso bar makes the following offer: People who supply their own half- pint carton of milk get to buy a cup of cappuccino for only $1.50 instead of $2.50. Half- pint cartons of milk can be purchased in the adjacent convenience store for $0.50. In the wake of this offer, the quantity of cappuccino sold goes up by 60 percent and the convenience store’s total revenue from sales of milk exactly doubles.
a. True or false: If there is a small, but significant, amount of hassle involved in supplying one’s own milk, it follows that absolute value of the price elasticity of demand for cappuccino is 3. Explain.
b. True or false: It follows that demand for the convenience store’s milk is elastic with respect to price. Explain.