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Answer :
Final answer:
The price elasticity of demand for cheddar cheese is calculated as -1.57, indicating a relatively elastic demand.Thus Option 2 is Correct.
Explanation:
When assessing the effect of a price change on the demand for a product, economists use the price elasticity of demand, which is calculated as the percentage change in quantity demanded divided by the percentage change in price. In this case, when the price of cheddar cheese increased by 14 percent, the quantity demanded decreased by 22 percent.
The price elasticity of demand is found by dividing the percentage change in quantity demanded (-22%) by the percentage change in price (+14%). This calculation yields the result -1.57. Since price elasticities of demand are typically evaluated in absolute terms, the appropriate conclusion here would be option 2, the price elasticity of demand for cheddar cheese is -1.57.
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