Question

1. A.

Suppose excellent weather leads to a larger than normal tomato crop. If there is a relatively small change in price compared to the change in quantity resulting from this large crop, what does this imply about the price elasticity of demand for tomatoes?

it is relatively elastic

it is relatively inelastic

it is perfectly elastic

it is perfectly inelastic

b. If the price elasticity of demand for tomatoes is -1.25 and quantity changes by 3% due to this large crop, how much will quantity demanded change? Show your work.

c.

If the price elasticity of demand for tomatoes is -1.25, what impact would an increase in supply have on total revenue for tomato producers ?

increase

decrease

no change

d. If in addition to a large crop, genetic innovation produces especially good tasting tomatoes, what will be the net impact on market equilibrium price and quantity of tomatoes?

Answer 1

1.When demand is less elastic, the change in price is less than change in quantity.

Answer-Second option

2.It is already given in the question that quantity will change by 3%.

3.An increase in supply reduces price. Demand is elastic in absolute terms(Ed>1).When the demand is elastic, a reduction in price increases total revenue as change in price would be greater than change in quantity.

4.Good tasting tomatoes would increase the demand for tomatoes. An increase in demand increases price.Large crop increases supply and reduces price.

Quantity would rise but effect on price is ambiguous.