Suppose the price of a pound of limes in 1794 was 4 shillings and 100 thousand...

Suppose the price of a pound of limes in 1794 was 4 shillings and 100 thousand pounds were bought and sold. In 1796 the price had increased to 6 shillings and the quantity bought and sold was 250 thousand pounds.

a. Draw and fully label a graph of the market for limes to illustrate what is going on in this situation. Label the quantities and prices given in the question as equilibrium prices and quantities for each year.

b. The price is going up and the quantity bought is going up too. Does this situation refute the law of demand? Explain.

c. Calculate an own-price elasticity for limes using the information in the problem. Use the midpoint formula. Show your work! Does your answer indicate elasticity, inelasticity, or unit elasticity?

Expert Solution

Rahul Sunny answered 1 year ago

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