The price elasticity of demand for a brand of breakfast cereal is 5 .
Based on this elasticity, what will be the percentage change in the quantity of breakfast cereal bought as a result of a $5 \%$ decrease in the cereal's price?

Choose 1 answer:
(A) $5 \%$
(B) $+1 \%$
(C) $-1 \%$
(D) $-25 \%$
(E) $+25 \%$

Question

The price elasticity of demand for a brand of breakfast cereal is 5 .
Based on this elasticity, what will be the percentage change in the quantity of breakfast cereal bought as a result of a $5 \%$ decrease in the cereal's price?

Choose 1 answer:
(A) $5 \%$
(B) $+1 \%$
(C) $-1 \%$
(D) $-25 \%$
(E) $+25 \%$

Accepted Answer

∻Solution∻ ‖ a ⋮ Definition of Price Elasticity of Demand: The price elasticity of demand (PED) measures the responsiveness of the quantity demanded of a good to a change in its price. It is calculated as $ ext{PED} = \frac{\% ext{ change in quantity demanded}}{\% ext{ change in price}} $. ‖ ‖ b ⋮ Given Data: The price elasticity of demand for the breakfast cereal is 5, and the price decreases by 5%. ‖ ‖ c ⋮ Calculation: Using the formula for PED, we can rearrange it to find the percentage change in quantity demanded: $ \% ext{ change in quantity demanded} = ext{PED} imes \% ext{ change in price} $. Substituting the given values, we get $ \% ext{ change in quantity demanded} = 5 imes (-5\%) = -25\% $. ‖ ∻Answer∻ ⚹ (D) $-25\%$ ⚹ ∻Key Concept∻ ⚹ Price Elasticity of Demand ⚹ ∻Explanation∻ ⚹ The price elasticity of demand quantifies how much the quantity demanded of a good responds to changes in its price. In this case, a PED of 5 indicates that for every 1% decrease in price, the quantity demanded increases by 5%. Therefore, a 5% decrease in price results in a 25% increase in quantity demanded. ⚹◊What is the formula for calculating the percentage change in quantity demanded based on the price elasticity of demand?⍭ Generate me a similar question◊

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