Question

Interpret the statistical estimates of price elasticity of demand for at least three (3) of the crops in the “Elasticity” report on fruits and nuts published by the University of California-Davis Agricultural Issues Center.

(By interpret I mean “assume the own price or cross price increases by 10%; what is the impact on quantity supplied and/or quantity demanded?”) Which fruits and nuts would you expect to be taxed more heavily, and why?

Answer 1

Abstract

Let us take example of three commodities as stated below :

These commodities given below represent some of highest value crops in California.

The commodities are : almonds , walnuts and alfalfa

If we look at the market share of this commodities -

1) Amonds are currently one of the biggest cash crops in California and produce 80 percent of the global almond supply.

2) Many varieties of walnuts are grown in California, six varieties account for over 85%: Chandler, Hartley, Howard, Tulare, Serr, and Vina.

3) Alfalfa is California's single largest agricultural water user due to the amount grown, typically about 1 million acres, and its long growing season.

All of these estimated own price demand elasticities are inelastic.

If there is an increase in price of 10% in the commodities , then there would be no change in quantity demanded because the demand is inelastic and would not change much with increase in prices.

The quantity supplied would increase because of increased prices to earn higher profits in the market.

The fruits and nuts whose price would be increased unnecessarily much higher so as to earn higher revenue from customers would be taxed higher so that the companies bring down the prices and don't charge the consumers unnecessarily.