Question

If a 2424 percent increase in the price of Cheerios causes a 2727 percent reduction in the number of boxes of cereal​ demanded, the price elasticity of demand for Cheerios is minus−nothing. ​(Enter your response rounded to two decimal​ places.) The demand for Cheerios is

a. inelastic unit −elastic
b. elastic .

Answer 1

Answer: b. Elastic

Explanation:

The price Elasticity of a good shows how sensitive it is to a change in price.

It can be calculated thus,

Price elasticity of demand = %change in quantity/%change in price

Plugging in figures we have,

Price elasticity of demand = -27% (because it is a drop so negative)/ 24%

= -1.125

When the Price Elasticity is above 1 then we say the good is ELASTIC meaning that a 1% increase in price causes more than a 1% decrease in Quantity Demanded.