Tasty Treat Tea: A Delicious Choice for Tea Lovers

What happens when the manufacturer of Tasty Treat Tea starts using imported tea leaves?

Is the price of Tasty Treat Tea affected? How does the quantity demanded change?

Answer:

When the manufacturer of Tasty Treat Tea switches to using imported tea leaves, the price of the tea rises by 10%. Additionally, the quantity demanded falls by 20%.

Tasty Treat Tea is a beloved iced tea drink known for its refreshing taste. However, when the manufacturer decides to switch to using imported tea leaves, the dynamics of the market change. The price of Tasty Treat Tea increases by 10%, making it a slightly more expensive choice for consumers.

As a result of this price increase, the quantity demanded for Tasty Treat Tea decreases by 20%. This significant drop in demand indicates that consumers are sensitive to the change in price and are adjusting their purchasing behavior accordingly.

Given that the quantity demanded changed by more than the price change, we can deduce that the demand for Tasty Treat Tea is elastic. This means that consumers are responsive to price changes and will adjust their consumption levels accordingly. In this case, the price elasticity of demand for Tasty Treat Tea is calculated to be 2, which is greater than 1 and signifies elastic demand.

Despite the price increase, Tasty Treat Tea remains a popular choice for tea lovers who are willing to pay a little extra for their favorite iced tea. The shift to imported tea leaves may have altered the market dynamics, but the delicious taste of Tasty Treat Tea continues to attract loyal customers.