The president of a small company that provides vending machines services asks you, as the company economist, to forecast changes in consumer snack purchases associated with a proposed price change. You conduct a survey and find that if the price of a snack increases from $1.00 to $1.75, the quantity demanded will decrease by 10%.
Calculate the price elasticity of demand
Should the vending machine company raise its price? Explain the economic basis for this recommendation to the president.
By how much the quantity demanded has to decrease in order for your recommendation in part (b) to change. Explain.