When the price of a box of cereal is $5, the quantity demanded is 800 boxes. When the price of a box of cereal is $7, the quantity demanded is 400 boxes. Calculate the price elasticity of demand when the price of a box of cereal is $6.
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Step 1
The percentage change in quantity demanded is (400 - 800) / 800 = -0.5 or -50%. The percentage change in price is (7 - 5) / 5 = 0.4 or 40%. The price elasticity of demand is the percentage change in quantity demanded divided by the percentage change in Show more…
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