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Suppose the elasticity of demand for cereal is 1. If cereal increases in price by 25 percent, the percentage decrease in quantity demanded will be 25%.
What is the elasticity of demand?
- The quantity sought for a good is measured according to its price elasticity of demand.
- Almost all goods see a decrease in quantity demanded when prices rise, however certain goods experience this decrease more than others.
- When a price increases by 1% while all other factors remain constant, the price elasticity provides the percentage change in the quantity required.
- If the elasticity is 2, a 1% increase in price results in a 2% decrease in the amount demanded.
- Other elasticities gauge how changes in other factors affect the quantity needed
- For example - the income elasticity of demand for consumer income changes.
Suppose the elasticity of demand for cereal is 1. If cereal increases in price by 25 percent, the percentage decrease in quantity demanded will also be 25%.
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