Question

Assume that bad weather shifts the supply curve for pineapples along the demand curve to the left which increases the pineapple price to $2.53/pineapple. If the original equilibrium price of pineapples is $1.15/lb and the original equilibrium quantity is 1,455,300 pineapples, the elasticity of pineapple supply is 0.85 and the elasticity of demand is -0.15, what is the new equilibrium quantity demanded of pineapples? What is the new equilibrium quantity supplied?

Answer 1

The % change in price = (2.53 - 1.15)/ 1.15 * 100 = 1.38/1.15 * 100 = 1.2 * 100 = 120%

The elasticity of pineapple supply is 0.85. So, % change in supply/% change in price = 0.85

So, % change in supply/120 = 0.85

% change in supply = 0.85 * 120 = 102%

The equilibirum supply of pineapples = 1,455,300

After the price increase, supply will increase by 102% of 1,455,300 = 102/100 * 1,455,300 = 1,484,406

So, the new supply is = 1,455,300 + 1,484,406 = 2,939,706

The elasticity of demand is -0.15

So, % change in demand/120 = -0.15

% change in demand = -0.15 * 120 = -18%

The equilibirum demand of pineapples = 1,455,300

After price rise, demand will fall by 18% of 1,455,300 = 18/100 * 1,455,300 = 261,954

The new demand is = 1,455,300 - 261,954 = 1,193,346

Answer:

The new equilibirum quantity demand is 1,193,346.

The new equilibrium quantity supplied is 2,939,706