Suppose your local espresso bar makes the following offer: People who supply their own half-litre carton of milk can buy a cup of cappuccino for only $1.50 instead of the usual $2.50. Half-litre cartons of mild can be purchased in the adjacent convenience store for $0.50. As a result 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 the value of the price-elasticity of demand for cappuccino is exactly -3. Explain.
b) True or False: It necessarily follows that demand for the convenience store’s milk is elastic with respect to price. Explain.