The Real Truth Behind ‘Price Elasticity’ Hidden in a Cup of Coffee in Sydney

On mornings when I had 8 a.m. classes, I often found myself torn between the university café and a small shop down the road. At the café, a flat white cost A$5.5, and students still queued for twenty minutes. The corner shop sold the same coffee for A$3.8, usually with a free cookie. Yet on those busy mornings I always chose the more expensive option. That choice, which looked irrational at first, turned out to be my first real lesson in price elasticity.

I noticed the price difference one morning when I was almost late. With only fifteen minutes left, the university café was the only realistic option. The cashier quoted A$5.5 without looking up. When I hesitated, she smiled and gestured at the long line: ‘See? Everyone’s in a hurry—we never discount.’ She was right. With only two cafés on campus, the morning rush meant demand never slowed, even when the price edged up.

The small community café down the street faced a completely different reality. It was in a residential area with several competitors nearby, including a chain store that often ran ‘buy one, get one free’ deals. The owner told me bluntly: ‘If I raise prices, customers immediately leave. Even a few cents matter.’ Most of his regulars were retirees and stay-at-home parents. They bought coffee casually and were highly price-sensitive. To keep them, he relied on small discounts or freebies like cookies.

This contrast matched what I had just learned in class. When demand hardly changes after a price rise, the product is inelastic. When a small change in price causes a big change in demand, the product is elastic. The campus café’s coffee was essentially a time necessity: students rushing to class with no substitutes. The community café’s coffee, on the other hand, competed with plenty of alternatives, so customers were far more sensitive to price.

I kept watching both shops. The university café saw a steady stream of customers every day, with almost no change when prices rose slightly. The community café spiked in sales whenever it offered promotions, but sales fell back once prices returned. The numbers didn’t need to be exact; the pattern was clear. Prices were not set at random—they already reflected demand elasticity.

Since then, I have stopped looking only at the price tag. Now I ask myself: is it peak or off-peak? Are there competitors nearby? Do customers have a must-buy reason? Economics is not just about lines in a textbook; it is about logic in everyday life. That A$5.5 campus coffee wasn’t just selling caffeine. It was selling time to students in a hurry. The A$3.8 community coffee wasn’t just cheap. It symbolized choice for customers who could easily walk away. Understanding elasticity is less about finding the ‘right’ price of coffee and more about seeing how every price reflects a balance between demand and choice.