Farmer John has an orchard in northern Wisconsin. He is trying to determine the
ID: 1102332 • Letter: F
Question
Farmer John has an orchard in northern Wisconsin. He is trying to determine the price elasticity of demand for Red Delicious Peaches. From past history, Farmer John knows that when the price of Red Delicious peaches changes from $2.00 a bushel to $1.50 a bushel, the quantity demanded for Red Delicious peaches changes from 100 bushels to 120 bushels.
a. Calculate Farmer John's price elasticity of demand. Make sure to show the equation with the numbers plugged in. If you only tell me the numeric answer without showing your work, no credit will be given even if your answer is correct.
b. Name the type of elasticity this number represents?
Explanation / Answer
a. price elasticity of demand = Percentage change in Quantity demanded divided by percentage change in price
%age change = (Final Value - Initial Value)100 / Initial Value
%dQ = (120-100)/100 = 20
%dP = (1.50 - 2)/2 = 25
e = 20/25 = -0.8
b. This is inelastic. As the value of elasticity is less than 1. It means that a very high change in price results in small change in quantity demanded.
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