Question

For the first time in two years, Big G (the cereal division of General Mills) raised cereal prices by 4 percent. If, as a result of this price increase, the volume of all cereal sold by Big G changed by -2 percent, what can you infer about the own price elasticity of demand for Big G cereal?

a. elastic
b. inelastic
c. unit elastic

Can you predict whether revenues on sales of its Lucky Charms brand increased or decreased?

a. Yes - it increased.
b. No - you can't tell.
c. Yes - it decreased

Answer 1

b. inelastic

c. Yes - it decreased

Step-by-step explanation:

Elasticitiy of demand measures the responsiveness of quantity demanded to changes in price.

Elasticity of demand = percentage change in quantity demanded/ percentage change in price

= -2/4 = -0.5

The absolute value is 0.5

If the absolute value of the coffiecnet of elasticity of demand is less than one, demand is inelastic.

Demand is inelastic if a change in price has no effect on quantity demanded .

We can tell that the quantity demanded fell because of the negative sign in front of the percentage change in quantity demanded.

I hope my answer helps you