By what percentage will the demand for coffee/ Econometrics
Starbucks just hired you to determine whether the city could support a new Starbucks coffee shop. There are currently four Starbucks coffee shops in the city, and each has just enough customers to survive. The average household income in the city is expected to increase by 10 percent per year for the next few years. Suppose the income elasticity of demand for Starbucks’ coffee products us 1.25. The population of the city is constant.
A.) By what percentage will the demand for coffee increase each year?
B.) How soon will the area have enough demand to support a fifth Starbucks?
