Question

MIT economist Jerry Hausman has estimated the price elasticity of demand for Post Raisin Bran cereal to be minus

2.5
and the price elasticity of demand for all types of breakfast cereals to be minus
0.9.
The demand for Post Raisin Bran cereal is

and the demand for all types of breakfast cereals is
elastic, inelastic

Why might the demand for Post Raisin Bran cereal be more elastic than the demand for all types of breakfast​ cereals?

Answer 1

Elastic; Inelastic; If a good is narrowly defined

Step-by-step explanation:

Price elasticity of demand measures the responsiveness of quantity demanded with any change in the price level of the product.

(a) If the price elasticity of demand is greater than one in absolute terms then the demand for that product is said to be elastic. Therefore, the demand for Post Raisin Bran cereal is elastic.

(b) Alternatively, if the price elasticity of demand is less than one in absolute terms then the demand for that product is said to be inelastic. Therefore, the demand for all types of breakfast cereals is inelastic.

(c) If the goods are narrowly defined, this means that there are large number of substitutes available. This indicates that the demand for these goods is elastic. Alternatively, if the goods are broadly defined then there are less number of substitutes are available. This means that the demand for these products is inelastic.