Maxwell10181 Maxwell10181

11-03-2020
Business

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Suppose that when the price of cereal rises 10 percent, the quantity demanded of cereal falls by 5 percent. Based on this information, what is the approximate price elasticity of demand for cereal?

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TonieCee TonieCee

16-03-2020

Answer: The price elasticity is 0.5

Explanation: The price elasticity of demand is calculated as the percentage change in the quantity demanded divided by the percentage change in the price.

Therefore, we have:

Percentage change in price = 10% (0.1)

Percentage change in quantity demanded = 5% (0.05)

Price elasticity = 0.05/0.1

Price elasticity = 0.5

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