Final answer:
The price elasticity of demand for Cheerios with a 13% price increase and a 12% decrease in quantity demanded is -0.9231, suggesting Cheerios are slightly inelastic as the absolute value is less than one.
Step-by-step explanation:
Price Elasticity of Demand
The price elasticity of demand can be calculated by comparing the percentage change in quantity demanded to the percentage change in price. If a 13 percent increase in the price of Cheerios leads to a 12 percent decrease in quantity demanded, the price elasticity of demand (Ed) is calculated as follows:
Ed = Percentage change in quantity demanded / Percentage change in price
Ed = (-12%) / (13%)
Ed = -0.9231
The negative sign indicates that the relationship between price and demand is inversely proportional, which is typical for most goods. A price elasticity of demand greater than one (in absolute value) would indicate that the good is elastic, meaning consumers are highly responsive to price changes. If it's less than one, the good is considered inelastic, indicating that consumers are not as responsive to price changes. The cereal in this case has an elasticity of approximately -0.92, which means it is slightly inelastic.