Answer to Question #15752 in Microeconomics for amanda

Question

9. Suppose we know that the price elasticity of demand for green chiles is – 0.8
Is the demand for green chiles relatively elastic or inelastic? Suppose half of the green chile crop is destroyed by E. coli contamination. What will happen to the price of chiles? Give a prediction of an exact percentage change in price.

Answer 1

Ed = %change Q / % change P
-0.8 = -50% / x
-0.8x = -50%
x = -50% /
-0.8
PRICES WILL RISE 62.5%