The above figure shows a consumer’s indifference curves for soda and a

The above figure shows a consumer’s indifference curves for soda and all other goods. Assuming a budget of $100, derive the consumer’s demand for soda for prices of $4 and $10 per case of soda. Estimate the price elasticity of demand for soda.

What will be an ideal response?

ANSWER

At a price of $4, 15 cases are purchased, At a price of $10, 6 cases are purchased. In both cases, the same total amount, $60, is spent on soda. This implies unit elasticity.