Question

A subsidy to wheat farmers decreases the price of a bushel of wheat from $2.50 to $2 per bushel. Prior to the subsidy, the equilibrium quantity of wheat sold was equal to 200,000 bushels. Of the demand for wheat is known to be unit elastic, then after the imposition of the subsidy, _____ bushels of wheat would be sold in the market.

Answer 1

After the imposition of the subsidy, 240,000 bushels of wheat would be sold in the market.

Step-by-step explanation:

When we talk about unit elastic we mean that the exact same porcentage in quantity demanded is exactly the same porcentage in price reduction.

So if the price of a bushel of weath is reduced 20% ((2.5-2)/2.5) the demand of bushels of wheat will rise in the exact 20% so 200,000*1.2=240,000