Microeconomics: Principles, Applications, and Tools (8th Edition)

Published by Prentice Hall
ISBN 10: 0-13294-886-9
ISBN 13: 978-0-13294-886-9

Chapter 5 - Elasticity: A Measure of Responsiveness - Exercises - 5.2 Using Price Elasticity - Page 122: 2.113a

Answer

The price will decrease by 20%.

Work Step by Step

$\Delta\ qty=\Delta\ price\times E_d$ $10=\Delta\ price\times0.5$ $10\div0.5=\Delta\ price\times0.5\div0.5$ $20=\Delta\ price$ The price will decrease by 20% because of the increased quantity. Because the price elasticity is 0, the supply curve is vertical, meaning the entire crop will sell at the new price.
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