Question

Q1. According to the USA Today newspaper in March 2010:

“A frigid Florida winter is taking its toll on your sandwich. The sunshine state is the main U.S. source for fresh winter tomatoes, and its growers lost some 70 percent of their crop during January’s prolonged cold weather. The average wholesale price for a 25-pound box of tomatoes is now $30, up from $6.50 a year ago. Florida’s growers would normally ship about 25 million pounds of tomatoes a week; right now, they are shipping less than a quarter (8million). High demand has driven up prices and wholesalers are buying from Mexico. Based on that, some restaurants provided tomatoes only on request.”

1. Using the information above find the demand and supply curves in the market for winter tomatoes.
2. Calculate the price elasticity of demand for winter tomatoes as well as elasticity of supply using the midpoint method.

Answer 1

a) In the previous year, Florida uses to supply 25million pounds per week at $6.5.Now they only manage to supply 8million pounds at $30. so there is a relatively inelastic supply with a rise in price.

b) Price elasticity of supply midpoint formula:

[(Q2-Q1)/(Q2+Q1)/2)]/[(P2_P1)/(P2+P1)/2]

[(8-25)/(8+25)/2]/[(30-6.5)/(30+6.5)/2]

(-17/16.5)/(23.5/18.25)=0.8<1 relatively inelastic

In this question, only a supply of two-point been given, and price also is given at that two-point. no mention of demand for tomato.