Introduction to Microeconomics(assignment#3)

Introduction to Microeconomics(assignment#3) - Assignment...

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1 Assignment #3 Introduction to Microeconomics Student Name: Student #: Chapter 5 (p. 140-141) Q3. Canadian wheat production increased dramatically in 1999 after a bumper harvest. The supply shifted rightward and, as a result, the price fell and the quantity demanded increased (a movement along the demand curve). The table below describes what happened to prices and the quantity of wheat demanded. Demand Data for Canadian Wheat 1998 1999 Bushels produced 1.74 billion 1.9 billion Average price per bushel $3.70 $2.72 a. Using the midpoint method, calculate the price elasticity of demand for wheat. Answer: Price elasticity of demand = % change in quantity demanded % change in price = Q 2 Q 1 Q 2 + Q 1 P 2 P 2 P 2 + P 2 = 1.9 1.74 1.9 + 1.74 2.72 3.70 2.72 + 3.70 = 0.16 3.64 0.98 6.42 = 0.04 0.15 = 0.27 = 0.27 b. What is the total revenue for Canadian wheat farmers in 1998 and in 1999? Answer: °??±² ³?????? = ´³µ¶? × ·?±??µ?¸ ¹?²º , In 1998, Total revenue = $3.70 × 1.74 billion = $6.44 billion In 1999, Total revenue = $2.72 × 1.90 billion = S5.17 billion c. How did the bumper harvest affect the incomes of Canadian wheat farmers? Answer: The quantity of harvest increases 9%: 1.90 1.74 1.74 × 100 = 0.16 1.74 × 100 = 9% The incomes of Canadian wheat farmers decrease 20%: 5.17 6.44 6.44 × 100 = 1.27 6.44 × 100 = 20% . Therefore, a rise of 9% in harvest quantity affected a fall of 20% in the income of Canadian wheat farmers. - How could you have predicted this from your answer to part a? Answer: In part a, price elasticity of demand is 0.27; this is less than 1, so this is inelastic demand. Because price elasticity of demand is too much lower, we could predict
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2 a large change in income by the quantity, that is, a rise of 9% in quantity decreases 20% of the income of Canadian wheat farmers. Therefore, the price elasticity of demand predicts the effect of a fall in price on total revenue. There is the price effect of a lower
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Introduction to Microeconomics(assignment#3) - Assignment...

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