Question

In: Economics

Suppose at the price of $8 per ton of flour, quantity demand for flour is 50...

Suppose at the price of $8 per ton of flour, quantity demand for flour is 50 thousand tons. However when price changes to $12 per ton, quantity demand for flour decreases to 40 thousand tons and at the same time quantity demand for rice increases from 20 thousand tons to 35 thousand tons.

Calculate Price Elasticity of Demand for flour and comment.

Calculate Cross Elasticity of Demand between rice and flour and comment.

Expert Solution

a. Price Elasticity of Demand

Given:

P1 = $8	Q1 = 50000
P2 = $12	Q2 = 40000

Price elasticity of demand =

Price elasticity of demand = (-)2500 * 0.00016 = (-) 0.4

Ed = 0.4 (less than 1)

Relatively inelastic demand: Ed < 1

Relatively inelastic demand means the change in demand of flour is less than that of change in its price.

b. Cross Elasticity of Demand

Given:

Price of flour

(P of good Y)

Quantity of rice

(Q of good X)

P1 = $8

Q1 = 20000

P2 = $12

Q2 = 35000

Cross elasticity of demand = %change in quantity demanded for good X / %change in price of good Y

(or)

Cross elasticity of demand =

Cross elasticity of demand = 3750 * 0.0004 = 1.5

Cross elasticity of demand = 1.5

Exy = 1.5 (greater than 0)

If the elasticity value is greater than zero, then the two goods are said to be substitutes.

Exy > 0 : Substitutes

Rice and flour are substitutes.

Rahul Sunny answered 1 year ago

MC = $10/ton Price = $30/ton Quantity = 30 Million tons Find the linear demand function...

MC = $10/ton Price = $30/ton Quantity = 30 Million tons Find the linear demand function and profit

Suppose in the world market, steel is sold at $5 per ton. The domestic demand and...

Suppose in the world market, steel is sold at $5 per ton. The domestic demand and supply curves of steel in Canada are Qd =28 – 2p and Qs = -8 + 2p where Q measures the quantity in tons. i. Calculate the amount of steel that will be produced and sold domestically. How much will be imported? ii. Now suppose Canada completely bans free trade in steel. What will happen to the price and the quantity produced and sold...

Suppose that the demand for a special kind of silica is given by Q = 55 – 0.5P, where Q is in tons of silica per day and P is the price per ton.

Suppose that the demand for a special kind of silica is given by Q = 55 – 0.5P, where Q is in tons of silica per day and P is the price per ton. This special kind of silica is produced by Thorpe Industries (a monopolist) that has a constant marginal and average total cost of $10 per ton. [up to 6 points]Derive the inverse demand and marginal revenue curves faced by Thorpe Industries.Equate marginal cost and marginal revenue to...

Suppose the own price elasticity of demand for good X is −0.25, and the quantity of...

Suppose the own price elasticity of demand for good X is −0.25, and the quantity of good X increases by 5 percent. What would you expect to happen to the total expenditures on good X? Please explain and show any calculations.

Suppose that the world price for a good is 50, and the domestic demand and supply...

Suppose that the world price for a good is 50, and the domestic demand and supply curves are given by the following equations: DX: PD=100-4QD SX: PS=10+6QS How much is consumed? How much is produced domestically? What are the values of producer and consumer surplus? If a 5% import tariff is imposed, by how much do consumption and domestic production change? What is the change in consumer and producer surplus? How much revenue does the government earn from the tariff?...

Price per DVD Quantity of DVD's demanded Quantity of DVD's supplied $ 8 18 DVD's 7DVD's...

Price per DVD Quantity of DVD's demanded Quantity of DVD's supplied $ 8 18 DVD's 7DVD's 9 16 10 10 13 13 11 10 20 12 9 24 13 7 26 14 5 29 a) Draw the demand and supply curves on the same graph. b) What is the equilibrium price and quantity demanded and supplied of DVD's? c) Would the price of $11 create a surplus or shortage of DVD's and by how many DVD's? d) What happens to...

2. Consider the following demand schedule for widgets: Price ($ per widget) Quantity (# per month)...

2. Consider the following demand schedule for widgets: Price ($ per widget) Quantity (# per month) 10 5 8 40 6 70 4 90 2 100 What is the price elasticity of demand for widgets between $8 and $10?______ What is the elasticity of demand between $2 and $4? ______ As price decreases, demand becomes more / less elastic. What is total revenue per month at a price of $4?______ A reduction in price from $4 to $2 causes total...

If the price elasticity of demand for cigarettes is –0.50 and the price of cigarettes increases 10%, the quantity demanded of cigarettes decreases by 50%.

True or False?If the price elasticity of demand for cigarettes is –0.50 and the price of cigarettes increases 10%, the quantity demanded of cigarettes decreases by 50%.

1) Suppose the price of a good increases 5%, and the quantity demanded falls 8%. The...

1) Suppose the price of a good increases 5%, and the quantity demanded falls 8%. The ----- of this good is -----. supply, unit elastic demand, perfectly elastic demand, inelastic demand, elasti 2) Suppose that when the price of a good increases from $120 to $132 per unit, the quantity demanded falls from 33 to 30 units. Using the midpoint method calculate price elasticity demand. -1 -1.25 3.0 -0.1 3) Along a straight-line demand curve, demand at higher prices is...

Suppose the own price elasticity of demand for milk is -0.75. (a) What happens to quantity...

Suppose the own price elasticity of demand for milk is -0.75. (a) What happens to quantity demanded and total revenue if the price increased by 10%? (b) If the own price elasticity of supply is -1.5, who would be more affected by a 50 cent tax on milk, collected from sellers?