Question

The price of Shoes in Japan is Yen 1000. When exchange rate is Yen=$1/100, the Quantity of Imports of Shoes from Japan is 150000. Today, the exchange rate is Yen=$1/200, and the Quantity of Imports of Shoes from Japan has risen to 200000 What is the elasticity of imports? (Use the situation with Yen=$1/100 as the starting point) Expert Answer

Answer 1

Import elasticity refers to the responsiveness of imports with changes in price due to exchange rate fluctuations.

The elasticity of imports = % change in import quantity/% change in price

Here, % change in import quantity = (200,000 - 150,000)/150,000 * 100 = 50,000 / 150,000 * 100 = 1/3 * 100 = 33.33%

The exchange rate of yen moves from Yen=$1/100 to Yen = $1/200. So, Yen falls by 100% i.e. prices decline by 100%. So, the change in price is -100% as price falls.

So, the elasticity of imports = % change in import quantity/% change in price = 33%/-100% = -0.33