Rain spoils the strawberry crop. As a result, the price rises from $4 to $6 and the quantity demanded decreases from 1,000 to 600 boxed a week. Over this price range.

a) What is the price elasticity of demand?

b) Describee the demand for strawberry.

Solutions

Expert Solution

For a, the price elasticity of demand is 1.25. The priice elasticity of demand is equal to the percentage change in the quantiity demanded divided by the percentage change in the price. The price of a box rises from $4 to $6 and so this is a increase of $2 for a box. This means that the average price for a box is $5. So the percentage of change in price is found by dividing $2 by $5 and multiplying by 100, this equal to 40 percent. ($2/$5) x 100 = 40% (This is percentage change in price).

Thee quantity decreases from 1,000 to 600 boxes and that is a decrease by 400 boxes. The average quantity is 800 boxes, so to find the percentage of change 400 is divided by 800 and then multiply by 100, which equals to 50 percent. (400/800) x 100 = 50 % (This is percentage change in quantity demand).

Now to get the price elasticity for the strawberries 50 percent is divided by 40 percent, which equal 1.25. (50/40) = 1.25

For b, since the price elasticity is 1.25, this means that it exceeds 1, so the demand for strawberries is elastic.

a) The price elasticity of demand is 1.25.

b) Demand for strawberries is elastic.

Heidi Singh answered 2 years ago

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