Question

Price elasticity of demand for tomatoes is 1.30. If hail storm adversely affects the nation’s production of tomatoes what will be the impact on total revenue from tomatoes and why?

Answer 1

The total revenue will decrease.

Explanation:

The price elasticity of demand is 1.30 that shows that change in the quantity of tomatoes is greater than the change in the price of tomatoes. The hail storm will decrease the quantity (supply) of tomatoes. However, this decrease in supply will increase the price but the ratio of change in quantity will be more than the ratio of change in price. Thus, total revenue from tomatoes will also fall.