Question

QUESTIONS The average price of wheat per metric ton in 2012 was $30575. Demand in millions of metric tons) in 2012 was 672. The average price of wheat per metric ton in 2013 was $291.56, while the demand was 700. Calculate the elasticity and classify as elastic or inelastic -0.04 elastic -0.9, elastic -0.9; inelastic -3.84, elastic -0.04 inelastic

Answer 1

Answer: -0.9 ; inelastic

Explanation:

Given:

The average price of wheat per metric ton in 2012 = $305.75

Demand (in millions of metric tons) in 2012 = 672

The average price of wheat per metric ton in 2013 = $291.56

Demand (in millions of metric tons) in 2013 = 700

We will compute the elasticity using the following formula:

ε =
`(((Q_(2) - Q_(1)))/(((Q_(2) +Q_(1)))/(2)))/(((P_(2) - P_(1)))/(((P_(2) +P_(1)))/(2)))`

ε =
`(\Delta Q)/(\Delta P)`

Now , we'll first compute
`\Delta Q`

i.e.
`(\Delta Q)/(\Delta P)` =
`((700 - 672))/(((700 +672))/(2))`

`\Delta Q` = 0.04081

Similarly for
`\Delta P`

i.e.
`\Delta P` =
`((291.56 - 305.75))/(((261.56 +305.75))/(2))`

`\Delta P` = -0.0475

ε =
`(0.04081)/(-0.0475)`

ε = -0.859
`\simeq` -0.9

`\because` we know that ;

If, ε > 1 ⇒ Elastic

ε < 1 ⇒ Inelastic

ε = 1 ⇒ unit elastic

`\because` Here , ε = -0.859
`\simeq` -0.9

Therefore ε is inelastic.