Drought in many wheat growing areas cut the quantity suppliedof wheat in 2002 by

Question

Drought in many wheat growing areas cut the quantity suppliedof wheat in 2002 by 2 %. The price elasticity of demand fro wheatis 0.5 and the cross elasticity of the demand fro pasta withrespects to the price of wheat is 2 a) By how much will the price of wheat rise b) By how much will the quantity demanded of pastachange c) Pasta makers estimate that teh change in the price of wheatin part a   will increase the price of pasta by 25% .what is the pasta makers estimate of the price elasticity of demandfor pasta? Drought in many wheat growing areas cut the quantity suppliedof wheat in 2002 by 2 %. The price elasticity of demand fro wheatis 0.5 and the cross elasticity of the demand fro pasta withrespects to the price of wheat is 2 a) By how much will the price of wheat rise b) By how much will the quantity demanded of pastachange c) Pasta makers estimate that teh change in the price of wheatin part a   will increase the price of pasta by 25% .what is the pasta makers estimate of the price elasticity of demandfor pasta?

Explanation / Answer

A) Wheat elasticity = .5 = % change in demand / % change inprice We want to increase the price so that there is no excessdemand. This is our maximum price we can sell at. Plugging in 2% for % change in demand, we get... .5 = 2% / x% x = 4% We should increase prices by 4% B) Cross elasticity = 2 = % change in demand for pasta / % change inprice of wheat Thus, % change in demand for pasta = 2 * % change in price ofwheat. We raised the price of wheat 4%. Therefore, thedemand for pasta will increase by 2*4% = 8%. C) 4% increase in the price of wheat --> 8% increase in the demandof pasta Price elasticity = % change in demand / % change in price E = 8% / 25% = .32

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.