For the first time in two years, Big G (the cereal division of General Mills) raised cereal prices by 3 percent. If, as a result
1 answer:
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Answer:
a. -1.25
b. -1.25
Explanation:
Price elasticity is used to measure the change in demand as a result of a change in price.
Formula is;
= % change in Quantity/ % change in Price
a. Suppose the price increases from $1.00 to $1.50. The price elasticity of demand is:
% change in Quantity using the midpoint formula;
% Change in Price using midpoint formula
= -0.5/0.4
= -1.25
b. Suppose the price decreases from $1.50 to $1.00. The price elasticity of demand is:
% change in Quantity using the midpoint formula;
% Change in Price using midpoint formula
= 0.5/-0.4
= -1.25