Pretend you are working at Starbucks Coffee

Being coffee drinks the only product analyzed in this problem (and not a specific coffee drink), the price elasticity of demand must be elastic. That is to say, a price change will cause a greater change in the quantity demanded. This is because there are a lot of competitors in the market that offers a similar service and there are a lot of substitutes.

Some examples of the substitutes for Starbucks' coffee are juices, tea, energy drinks, water, or nonalcoholic drinks offered in restaurants, pubs, and other cafes.

Based on the information given above, an increase in the price of the product will cause a drop in total revenues. Since Starbucks' price elasticity of demand is elastic, an increase in prices will cause a decrease in the quantity demanded. Additionally, the decrease in the quantity demanded will be greater in proportion compared to the price increase causing a drop in revenue. Additionally, having a lot of substitutes and competitors, consumers have enough options to purchase other products whose price did not increase.