MIT economist Jerry Housman has estimated the price elasticity of demand for Post Raisin Bran cereal to be -2.5 and the price elasticity of demand for all types of breakfast cereals to be -0.9. The demand for Post Raisin Brand cereal is: 1. elastic 2. inelastic the demand for all types of breakfast cereals is: 1. inelastic2. elastic

The demand for Post Raisin Brand cereal is: ELASTIC  

the demand for all types of breakfast cereals is: INELASTIC

Explanation:

To calculate the price elasticity of demand (PED) we can use the following formula:

PED = % change in quantity / % change in price

*The PED always results in a negative number, e.g. price deceases, quantity increases, but for practical reasons we convert the negative number into a positive (we use absolute values) when we are determining the elasticity.

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